Community bankers distrust the Fed, fear nonbank competitors

American Banker's 2026 State of Open Finance Adoption Report

This item focuses on results from community bankers. To view the overall research, click the links below.

• Part one: Bankers forecast 2026 upheaval in cybersecurity, regulation
• Part two: Bankers fear economic struggle in 2026
• Part three: Fraud will remain a top problem for banks in 2026, but AI could help
• Part four: Cybersecurity, fraud attacks may cause systemic risk in 2026
• Part five: Bankers wary of nonbank payment rivals in 2026

Losing faith in the Federal Reserve Board of Directors

President Trump's ongoing criticism of the Federal Reserve and Chairman Jerome Powell has created a rift in the financial services industry surrounding the central bank's impartiality and overall power.

Community bankers were the group that saw the largest share of respondents who lost faith in the decisions of the Federal Reserve Board, recording a cumulative 50% who lost some degree of trust. Credit union executives were close behind with 43% of respondents, followed by regional bankers with 41% and lastly national bankers with 23%.

At least 35% of all respondents neither lost nor gained trust in the board's decisions.

Only 5% of community bankers grew more trusting of the Fed board's decision-making, while national bankers saw the greatest share of respondents (27%) who said they have more trust in the Fed board now than roughly one year ago.

Market confidence in the central bank's independence appears to still be fairly strong. However, Trump's campaign to oust Fed Governor Lisa Cook over allegations of mortgage fraud has left bank advocates wondering how much influence can be truly exerted over the Fed board's composition.

Now, following Trump's recent selection of former Fed Gov. Kevin Warsh to replace Jerome Powell as chairman when Powell's tenure expires in May, the prospect of a party shift within the central bank is becoming more likely.

"I think over time, the president is going to get a majority of the board," Mark Spindel, senior advisor at F/m investments and chief investment officer at Potomac River Capital, told American Banker. "He wants power … and it frustrates him that the most powerful economic agent in government — in the country, in the world — is not exactly under his control."

Key takeaway: Community bankers were the most distrustful of the central bank board's decisions.

Who's spending on increased fraud defenses?

While fraud can be a problem for institutions of all sizes, smaller institutions feel the impact more. 

Sixty-six percent of community banking respondents listed enhanced security and fraud mitigation as among their institution's top five spending priorities for 2026. Credit unions (57%), regional banks (50%) and national banks (44%) also saw sizable shares of experts who said tech spend on enhancements to fraud mitigation were of top importance in the coming year.

While the concept of fraud can be easily defined, the schemes used to prey on consumers and institutions alike vary. These nuances make it especially difficult for banks to combat, and defenses that work for one institution might not work for others.

The material impact of these schemes was evident in the downcast performance of bank stocks late last year, following credit quality shakeups in the wake of numerous disclosures of alleged borrower fraud. At the time of reporting, the KBW Nasdaq Regional Banking Index fell some 7% by the late afternoon after Zions Bancorp. and Western Alliance Bancorp. said they had exposures to fraud-linked losses.

Institutions like the $8.4 billion-asset Michigan State University Federal Credit Union in East Lansing have enlisted the help of security tech firm Pindrop to defend against the emergence of deepfake-driven fraud. As a result, executives say they were able to trace $2.57 million in fraud exposure that they avoided by catching deepfake calls.

"Partnerships are critical to creating a really robust fraud program that doesn't put friction in the members' hands," Colleen Cole, vice president of MSUFCU's member service center, told American Banker. "Partners like Pindrop know our organization's goals and know the type of fraud we're seeing."

Key takeaway: Stronger security and fraud mitigation was the No. 1 area of importance for community bankers to increase funding.

Where can artificial intelligence best help bankers?

When it comes to artificial intelligence, community bankers were the most optimistic that the technology will drastically improve back-office automation and fraud detection.

About 66% of community bankers said AI will have a significant impact on fraud detection and mitigation in the coming months, above regional banks (54%), national banks (44%) and credit unions (43%).

The same enthusiasm applied to how AI would impact back-office automation. Fifty-four percent of community bankers said AI would help improve back-office efficiency, compared to regional banks at 38%, national banks at 32% and credit unions at 19%.

The application of AI in fraud detection and mitigation is a newer phenomenon compared to back-office automation, especially when considering the evolving tool kits used by bad actors to evade detection by banks. A preliminary AI cybersecurity risk profile by the National Institute of Standards and Technology, released late last year, offers institutions fresh insight into how AI can be integrated into cybersecurity playbooks.

For the $13.3 billion-asset OceanFirst Bank in Toms River, New Jersey, AI has helped shave nearly all of the time from its anti-money-laundering procedures in bond portfolio examinations. What once took six to eight hours now takes roughly 15 minutes.

"This has been what seems like a lifelong pursuit of AI," Brian Schaeffer, the bank's chief information officer, told American Banker, adding that AI is "inherent in everything we do."

Key takeaway: Community bankers were the group most agreeable to using AI for fraud detection and back-office automation.

The disparate impact of check fraud

Fraud remains a thorn in the side of banks and credit unions alike. For community bankers, check fraud is the biggest beast to slay.

More than half of community bankers (56%) said check fraud will have the biggest negative impact on their institution in 2026, followed by 38% of regional bankers, 7% of national bankers and 19% of credit unions who said the same.

Real-time-payments fraud was the top category for national bankers (51%) and wire-transfer fraud was top for regional bankers (46%). At credit unions, it was a tie between account-takeover fraud and identity theft (both 52%).

The Luddite characteristics of check fraud, such as the involvement of physical documents and the number of people that handle them through traditional delivery channels, make it especially difficult to consistently monitor. 

Stolen checks are often sold to the highest bidder with no way for the backing institution to know at the moment. Thus, fraudsters are able to not only siphon funds from legitimate entities but also steal or create wholly new identities using the credentials on the checks. 

In an August 2025 BankThink, David Maimon, head of fraud insights for SentiLink, said instances of check fraud are indicative of a "systemic vulnerability that financial institutions could easily underestimate."

"Financial institutions — and especially their fraud and compliance teams — cannot afford to treat this as merely a check-fraud problem," Maimon said. "It is an upstream identity compromise with downstream impact across every product line: personal checking, SMB accounts, digital lending [and] even tax prep partnerships."

Key takeaway: While other institutions feel more secured against check fraud, 56% of community bankers consider it their top threat.

Going toe-to-toe with bankers

Community banks face stiff competition across the next several months, from a number of adjacent financial providers.

In descending order, community bankers ranked nonbank payments companies (62%), nonbank mortgage companies (59%), credit unions (52%) and nonbank stablecoin issuers (44%) as threats for 2026.

For regional banks, the hierarchy of competitors was about the same: Nonbank payments companies (46% of respondents), nonbank mortgage companies (46%), credit unions (31%) and nonbank stablecoin issuers (31%).

National bankers saw nonbank payments companies (58%) as the top threat to their business in the coming year, followed by nonbank mortgage companies (41%), nonbank stablecoin issuers (32%) and lastly credit unions (20%).

Credit-union respondents ranked nonbank payments companies (67%), nonbank mortgage companies (52%) and nonbank stablecoin issuers (38%) as top business threats for the year ahead. None ranked other credit unions as a threat.

Nonbank firms are continuing to outperform their traditional counterparts, as increased lending to such institutions and proposals for reduced regulatory oversight clear the way for further growth.

Data released late last year by the Basel, Switzerland-based Financial Stability Board highlighted how nonbank assets increased 9.4% in 2024, double the growth of the banking sector's rise of 4.7%. Further, assets held by nonbank financial institutions accounted for 51% of total global financial assets, or $256.8 trillion.

"Unburdened by the capital requirements, examinations and supervisory constraints that weigh on banks, nonbanks have expanded aggressively into areas once dominated by regulated lenders," Eugene Ludwig, chief executive of Ludwig Advisors, told American Banker. "Allowing nonbanks to continue expanding under lighter rules will, sooner or later, reap the whirlwind for the U.S. economy and the banking industry alike."

Key takeaway: Nonbank entities are perceived to be the biggest threats to community banks in 2026.