Annual planning is underway, but it’s not clear what lies ahead. What should financial institutions’ (FIs’) senior leaders do? There may be no right answers — banking rules are piling up while changes in control of Congress or the White House could upend them. With the election a coin toss and without clear policy proposals, there’s no telling what legislation could look like in the next few years. The Federal Reserve cut interest rates by a half point last week amid a cooling job market and against the specter of stagflation.

In the meantime, bankers face vexing questions about their long-term growth and survival. Life is hard for community banks, spurring further consolidation. Legacy tech stacks weigh on growth, and customer expectations demand modernization, but new technology is costly and complex. Competition from big banks and consumer technology brands on the retail side is squeezing margins. And developing talent is increasingly a challenge, especially amid the upskilling artificial intelligence (AI) will require.

Policy

As we wrote, regulators have put the industry under pressure. They’ve proposed changes to capital requirements to align with Basel III; the Consumer Financial Protection Bureau (CFPB) issued guidance on reporting for credit denials in AI-powered underwriting; regulation taking effect in 2026 redefines criteria under the Community Reinvestment Act; and updated guidance affects the evaluation of contingency funding plans. The FDIC has proposed a dramatic shift in the regulation of brokered deposits, and the CFPB’s small-business lending rule promises a compliance burden that will hit community banks particularly hard.

Politics

Would a Harris administration continue Biden-era policies? More of the same would mean tighter regulation of the banking industry and a clear path for today’s pending rules. What would happen under a second Trump administration? The Heritage Foundation’s Project 2025 supports the merger of banking regulators; some Trump allies have reportedly drawn up a plan to curtail the Federal Reserve’s independence. It also wouldn’t bode well for the CFPB, which has thrived under the current administration but was hamstrung during Trump’s first term.

The economy

The Federal Reserve’s decision last week to cut the benchmark interest rate by half a point raises questions: Will it continue to cut rates, and how quickly? What will funding costs be next year? What will loan demand look like? Consumer confidence? Are we headed for stagflation? There seems to be a consensus that we will see several more rate cuts in 2024, pulling back further from this year’s peak Federal Funds Effective Rate of 5.33%. The industry can hope for the best, but with the failure of Silicon Valley Bank and the instability among regional financial institutions that followed, the runup in interest rates nearly sparked economic disaster. Surprises may come as rates unwind.

Industry trends

The banking industry is consolidating, including acquisitions by credit unions, as survival demands scale — the number of FDIC-insured institutions fell from 18,045 in 1984 to 4,599 in 2023, according to FDIC data. New charters dropped to nearly zero during the financial crisis and never meaningfully recovered. Acting Comptroller of the Currency Michael Hsu recently predicted more banks with greater than $100 billion in assets.

Meanwhile, as we’ve written, the cost or capacity to implement new technologies impedes their adoption while the burden of maintaining legacy technology eats into modernization budgets. As we’ve also noted, bankers increasingly need a deep knowledge of enterprise applications and the fintech market, a nuanced vision for the bank’s technology stack, a detailed plan for integrations, and the right processes in place to evaluate options and onboard their choices. AI is top of mind, and the risk and compliance measures that should be in place complicate adoption.

As we’ve also written, talent needs are clear. In a survey we covered, respondents planned to net hire for commercial and business lending as they looked for stable and diverse sources of revenue; in technology to maintain systems and build out digital services; risk and compliance as regulatory action heats up; and cybersecurity as threats rise. But talent development is a problem as training programs have faded away, a skilled workforce ages out, and new technologies demand new skillsets. AI, for example, won’t replace staff, but it will require them to reskill.

What’s a banker to do? There are no easy answers.