Key insight: Banks are derisking across their balance sheets, with digital assets leading the way according to research from American Banker.
What's at stake: Research suggests banks prefer regulatory clarity over deregulation.
Forward look: While current policy changes are often framed as relief for banks, it doesn't necessarily create a simpler environment for the financial services industry.
Banks are reducing risk across their balance sheets and crypto is a prime target, according to a proprietary American Banker Market Intelligence survey of risk and compliance professionals at banks and credit unions.
The data revealed that six-in-ten financial institutions are scaling back risk exposure in at least one asset class. Digital assets led the retreat with 26% of institutions derisking.
The findings also indicate that banker caution stems from a preference for clear, predictable regulatory guardrails over leniency, a dynamic most acute in digital assets, where shifting rules compound existing market volatility. The majority of bankers – 80% – agree that a stable, predictable regulatory environment is best for the long-term health of U.S. banking; 56% strongly agreed.
Leaders should focus on fortifying internal risk management and stress-testing volatile portfolios, as external regulatory clarity may take time to arrive. Broad deregulation doesn't reduce compliance costs or lower operational complexity.
The Scale-Driven Risk Divide
Derisking in digital assets outpaced cutbacks in commercial real estate (CRE) lending and private credit or leveraged lending. Meanwhile, a third are keeping exposure steady across all categories.
Larger banks are taking a more cautious risk posture while smaller banks are holding steady. Larger banks typically have a broader risk exposure and are likely engaging in these areas more in the first place compared to smaller banks. Additionally, smaller banks may not be as selective of where they're pulling back compared to larger institutions.
Cryptocurrency exposure stands out as a unique liability spanning institutional tiers, driving retrenchment among 29% of credit unions and 26% of community banks, whereas core consumer lending remains the least targeted area for balance-sheet contraction (ranging from just 11% to 20%).
Large national banks ($100B+) are executing the sharpest risk reductions across major lending categories, with 33% actively pulling back from private credit, 33% from commercial real estate, and 31% from digital assets.
In contrast, smaller institutions were less reactive. Forty-six percent of credit unions and 41% of midsized banks report no risk pullbacks across any category. However, both community banks and credit unions showed they are retreating out of cryptocurrency or digital asset exposure most out of the asset options (26% and 29% respectively).
Interestingly, national banks had the lowest percentage of "no, we aren't pulling back risk exposure anywhere" with 18%, while credit unions had the highest (46%).
This divergence largely stems from product scale and complexity. Large national banks maintain broader, higher-risk offerings, such as digital assets and concentrated private credit, whereas community banks and credit unions typically stick primarily to traditional core lending. Larger institutions generally carry greater overall risk exposure simply due to their expanded operational footprint.
This structural exposure is particularly pronounced in digital assets, where policy shifts compound market swings and unpredictability.
Changing macroeconomic pressures are generating substantial uncertainty and heightening risk vulnerabilities across the financial sector. Even with broader deregulation, the ongoing legal ambiguity surrounding crypto introduces a level of uncertainty.
A potential driver for this caution, as survey findings reveal, is that bankers desire clear, predictable regulatory guardrails rather than mere policy permissiveness.
Predictability Over Permissiveness
When asked about the current regulatory climate, bankers are still not convinced that the current deregulatory policies are sufficient.
Although the GENIUS Act has passed, key implementation details remain uncertain. Attention has now shifted to the far more contentious CLARITY Act. Both banks and fintechs have expressed frustration with the structure of the act in how it's written to address yield and deposits. Even if enacted, the CLARITY Act will likely face similar implementation hurdles and broader systemic implications, outcomes that may draw further resistance from segments of the banking sector.
Forty-eight percent of respondents call the current regulatory climate too restrictive for an institution of their size, against 42% who say it is about right and only 10% who say it is too permissive. Read alone, that looks like an appetite for deregulation. The follow-up questions say it is not.
Eighty percent agree that a stable, predictable regulatory environment is best for the long-term health of U.S. banking, with 56% strongly agreeing.
But respondents do not expect to get it. Only 22% think the regulatory environment will become more predictable and less volatile over the next five years. 63% expect the pace of new rules and guidance to accelerate.
When our survey results were broken down by type/level of employee, we see distinctions about who feels squeezed by these changes and who does not. The "too restrictive" reading is concentrated at the top: 62% of C-level and senior executives say the climate is too restrictive. 68% of credit unions call the climate about right, versus 29% of national banks.
What's interesting is that the moves for deregulation have not appeared to lower the bill. When asked what the current regulatory environment actually caused them to do in the past 12 months, respondents describe spending more, not less. 50% increased investment in risk prevention and 46% in compliance; 62% did at least one. Only 10% shifted resources away from compliance — the single action a genuine deregulatory dividend would produce.
An institution's inherent risk tolerance can be influenced by its stance on the current state of regulatory oversight.
Regulatory policy has shifted toward reducing oversight, with the intention of allowing banks and nonbank institutions to operate in a more competitive, free-market environment. However, while these policy changes are often framed as relief for banks, it doesn't necessarily create a simpler environment for the financial services industry.
Financial institutions do not inherently benefit from a higher volume of rule rollbacks, and the survey suggests that the sector functions best under regulatory oversight that is clear, distinct, and easily understandable.
