Banking News Roundup – 2025: Week 20
Moody’s downgrades the U.S., stablecoin legislation advances, tax reform stalls, the CFPB rolls back rules, exec pay draws scrutiny, insider risk bites Coinbase, and credit trends shift.
U.S. Rating
Moody’s Ratings downgraded the United States from Aaa to Aa1 for its long-term issuer and senior unsecured ratings. It is the last of the major ratings agencies to do so, with Fitch Ratings making a similar change in August 2023 and S&P Global Ratings issuing a downgrade in 2011. The downgrade is not expected to impact the risk ratings of Treasury bonds held on bank balance sheets, nor should it have an impact on bank collateral management, as regulators reduced system-wide reliance on credit ratings following the 2008 financial crisis.
Washington D.C.
A major tax package advanced by the House Ways and Means Committee was blocked by conservatives on the Budget Committee. In a blow to the banking lobby, the bill did not eliminate the credit union tax exemption. However, it included several provisions favorable to community banks — including a permanent 23% pass-through deduction for S-Corps and tax relief for agriculture lending.
Bipartisan talks in the Senate have revived hope for stablecoin legislation, which stalled last week. Revised provisions strengthen consumer protections, ban interest payments, and restrict issuance by non-financial public companies. Lead sponsors Senators Angela Alsobrooks (D-MD) and Bill Hagerty (R-TN) hope to bring the bill to a floor vote before Memorial Day.
Bloomberg reports that the Federal Reserve plans to reduce its workforce by about 10% over several years, primarily through attrition and voluntary exits. Unlike the abrupt job cuts driven by the Department of Government Efficiency (DOGE) at the CFPB and FDIC, this is a gradual consolidation amid rising costs and pressure to streamline.
President Trump signed Congressional Review Act resolutions overturning the CFPB’s overdraft fee cap and its larger participant rule for payments companies. Both measures were previously covered in Bankeration. The CRA process blocks the rules from taking effect and bars the Bureau from issuing substantially similar ones in the future.
Regulation
The Consumer Financial Protection Bureau (CFPB) will withdraw dozens of policy statements and interpretive rules dating back to 2011, citing a shift toward formal rulemaking. Enforcement will be deprioritized while withdrawn items are under review — consistent with broader efforts to limit regulatory sprawl under the Trump Administration. The action, which is expected to be published in the Federal Register next week, targets everything from earned wage access programs to digital marketing restrictions and consumer complaint data disclosures.
Separately, the CFPB withdrew its proposed data broker rule, which aimed to broaden the definition of consumer reporting agencies. The rule was already the subject of pending congressional efforts to legislatively repeal it. The CFPB cited shifting policy priorities, concerns over statutory authority, and critical public comments as reasons for the withdrawal, and indicated it may revisit the issue in the future through a new rulemaking process.
New York State enacted a licensing and oversight framework for buy now/pay later lenders as part of its 2026 budget, establishing new consumer protections while the CFPB retreats from federal enforcement. The law applies even to 0% interest Pay-in-4 loans and includes Truth in Lending Act (TILA)-style disclosures, underwriting standards, and data privacy rules. Industry groups have criticized the law as overly broad and are pushing for changes before the legislative session ends in June.
The Fed’s five-year policy review is emphasizing communication improvements during periods of uncertainty. Former Chair Ben Bernanke added his own call for greater transparency, proposing a quarterly Fed report outlining economic assessments and forecasts — a step he said would align the U.S. central bank with peers abroad.
Compensation
Space City Credit Union members approved a merger with Texas Dow Employees Credit Union despite controversy over $6.75 million in payouts to three Space City executives. Critics labeled the payments excessive, especially since CEO Craig Rohden is retiring after the merger.
Former Wells Fargo AML chief Jim Richards is suing the Federal Reserve after it blocked his deferred stock payout, classifying it as an impermissible “golden parachute.” Richards argues the stock was retention-based, not a severance bonus, and alleges the Fed acted arbitrarily. The case could set new precedent on post-employment pay approvals for executives at troubled banks.
KeyCorp’s say-on-pay proposal passed with just 63% shareholder support — down from 89% last year — after proxy advisors criticized $16.7 million in special bonuses awarded to top executives. Key has pledged that such bonuses won’t become a regular practice but defended the awards as necessary to retain leadership during a pivotal moment.
Credit
The Federal Reserve Bank of New York’s latest Household Debt and Credit Report shows total household debt rose to $18.2 trillion in Q1 2025. Most notable: student loan delinquencies jumped to 7.7%, up from less than 1% in Q4, following the end of pandemic-era reporting protections. While mortgage debt grew and card/auto balances declined, overall delinquency rates climbed to 4.3%, signaling growing financial strain among U.S. households.
New York factory activity declined for the third straight month in May, with the Empire State Manufacturing Survey business conditions index slipping 1.1 points from April. Input costs rose sharply — the “prices paid” index hit a 22-month high — while selling prices eased, signaling margin pressure. New orders and shipments rebounded modestly, but employment and hours worked fell. Firms signaled pessimism about the outlook, citing worsening supply availability and rising cost expectations. The survey was conducted before the U.S. and China reached a temporary truce on tariffs.
Wall Street banks are using rarely deployed 364-day bridge loans to finance buyouts, as recent market turmoil and tariff-driven uncertainty make traditional long-term commitments riskier. Bloomberg reports that recent deals by Herc, NRG, Sunoco, and Clearlake Capital used this structure, marking a notable shift in M&A financing strategy.
Despite record fundraising and investor enthusiasm, private credit is showing signs of strain. Bloomberg reports that advisory firms report a sharp rise in restructurings involving direct lenders, with up to 80% of complex workouts now tied to private credit. Stubbornly high rates, economic uncertainty, and maturing 2021–2022-era deals are pressuring borrowers, prompting debt extensions, covenant waivers, and in some cases, debt-for-equity takeovers.
Digital Assets (aka Cryptocurrency)
Coinbase disclosed a significant insider-led security breach last week, in which overseas customer support agents were bribed to leak sensitive customer information. Hackers accessed names, addresses, ID documents, masked bank details, and account data for fewer than 1% of users and demanded a $20 million ransom. Coinbase refused to pay and is now offering a $20 million bounty for information leading to the attackers’ arrest and conviction. Estimated costs for remediation and voluntary customer reimbursements could run as high as $400 million.
The attack was a classic social engineering scheme—not a code exploit—underscoring the operational risks tied to customer support infrastructure. Coinbase says affected users will be made whole, and that institutional services, including ETF custody, were not impacted.
As Bankeration reported earlier this year, insider fraud is on the rise, fueled by the ease of monetizing stolen data on platforms like Telegram. This incident reinforces that insider risk isn’t limited to traditional banks—and that even top-tier crypto firms can be vulnerable.
Three of the world’s largest financial institutions made blockchain moves this week—without ever saying the word “crypto.” The New York Fed and BIS concluded that tokenization won’t undermine monetary policy—and could even enhance it. JPMorgan settled tokenized Treasuries on a public blockchain for the first time, using Chainlink and Ondo Finance. Citi spoke to American Banker about plans to expand Citi Token Services, which offers cross-border payments via a private blockchain, integrated directly into its treasury portal. The takeaway: tokenization is moving forward—not through disruption, but through integration. Incumbents are building blockchain into their infrastructure, quietly shifting how money moves under the hood.