Federal Reserve Slashes Oversight, Raising Concerns of Increased Risk

In a significant shift, the Federal Reserve is overhauling its approach to financial supervision and risk monitoring. On October 29, 2025, top Fed officials received a memo outlining directives that would substantially reduce the scrutiny examiners apply to lenders.

The changes, implemented under the leadership of Michelle Bowman, the Fed's new vice chair for supervision, are part of a broader effort to provide regulatory relief to banks. Bowman, appointed by former President Trump, has long argued that banks face too much red tape and should operate with lighter-touch oversight.

The memo instructs examiners to focus solely on "material financial risks" and avoid getting "distracted" by processes and documentation. It also limits the oversight power of key risk assessment programs created after the 2008 financial crisis. Current and former policymakers warn these sweeping changes could sow the seeds for the next crisis by encouraging the kind of risk-taking that led to the last one.

With the Fed cutting supervisory staff by 30% and other regulators like the CFPB scaling back oversight, experts fear the financial system is becoming increasingly vulnerable. As one former regulator put it, "When you create blind spots like this, you limit what your range of visibility is."