Banks are making money — serious money. In the first quarter of 2026, FDIC-insured institutions reported $80.5 billion in aggregate net income with a rock-solid return on assets (ROA) of 1.26%. After the fear and loathing of COVID, “March Madness 2023” (Silicon Valley Bank failure) and the volatility of trade wars, bank are operating on solid ground and enjoying a roughly 30% pop in stock valuations the past year.
And now bankers are looking with both hope and anxiety at Kevin Warsh, the new Federal Reserve chairman — a plain-spoken maverick who’s confidently promised “regime change” at the Fed. Here’s the paradox: Bankers instinctually hate a heavy hand from government, and Warsh clearly wants to move the Fed away from the expanded, interventionist role it has played since the 2008 financial crisis. At the same time, bankers should admit that the financial system flourished with growth under the “free money” environment of 2010 to 2021. Asset prices rose, growth was subsidized, and borrowing across consumers, business, and private equity was made easy. Ka Ching.
Warsh also inherits the realities of today’s bloated Fed balance sheet while hoping to serve a populist president who loves the idea of lower rates. He will not be able to govern on philosophy alone, and there are sure to be trade-offs as he navigates this tension.
Here’s a cheat sheet for what bankers should be considering under a Warsh regime:
The Potential Regulatory Tailwind — Warsh is not a fan of the Fed’s role in independent bank regulation vs. its core monetary policy mission. With Fed Vice Chair Michelle Bowman as an ally, there certainly seems to be an environment for growth without excessive capital requirements, micro-managing exams, or moves to politicize the banking industry. Bankers may ask: Despite the natural anxiety and volatility in the economy today, is this a time for bold moves and growth?
That said, prediction markets say there’s a 77% chance the Democrats take the House of Representatives this Fall, ushering in the return of California’s Maxine Waters as Chair of the House Financial Services Committee.
Bottom Line: Bankers should be thinking about growth more entrepreneurial in this environment while understanding that an investment in risk and compliance infrastructure is table stakes in the new world.
A New Hawk for Sound Money — Despite his desire for a narrowly focused Fed, Warsh will be a political hot potato from day one. His conviction to address inflation already generated headlines like “Warsh Fooled Trump” after leading his first Federal Open Market Committee. The market immediately responded to this tension by pricing in higher expectations of a rate hike vs. rate cut.
Bottom Line: Banks are doing just fine in a “higher for longer” environment, and they best buckle in for this to be the new normal. The upshot: Core deposit funding has just become even more of a forward challenge, and strategic plans need to acknowledge competition for funding as a serious risk to growth.
No More Guidance May Spell Volatility — Warsh has been clear: He doesn’t believe in forward guidance, and he proved this conviction in his very first meeting this week. Some feel this will add uncertainty and more volatility to the market without a paternal Fed working to guide the market.
Bottom Line: Good for Warsh. Volatility comes from everywhere, and the market needs to put on its grown-up pants and live in reality without a Fed trying to control things and smooth the edges. The art of asset/liability management got lost for many banks in the zero-interest decade. Today, every bank should urgently be adding deeper analytics and sophistication into their operating cadence.
As he assumes a really hard job, Warsh is praying that a recklessly spending country with a bloated central bank can be saved by a historic AI productivity boom. He’s hoping AI-driven gains will give him room to shrink the Fed balance sheet without a liquidity crisis.
Bottom Line: Warsh is smart to potentially use the next tech inflection point to stop kicking the can down the road, but it’s a high-risk bet. For banks, be prepared that the bet could heighten deposit costs, make long-term yields jump, and unintentionally cool the economy. Bankers need to think about all these scenarios and create the balance sheet and strategic flexibility to navigate this Fed regime change.
So, GonzoBankers, monitor those FOMC statements, Bowman’s supervision moves, and any pressure that might come from the White House — the possibilities are endless. Personally, I hated the dysfunction of the free-money era, and I’m wishing Chairman Warsh good luck. A real free-market economy without manipulation is a beautiful thing.
Steve Williams is a founder and chief executive officer of Cornerstone Advisors. Tune in to Steve’s Plugged In podcast and follow him on LinkedIn and X.