TAILOR Act Mandates Risk-Based Financial Rules, Easing Reporting for Community Banks

The Taking Account of Institutions with Low Operation Risk Act of 2025, or the TAILOR Act, is a major push to stop the government from regulating every financial institution—from Wall Street giants to your local credit union—with the same heavy hand. The core of this bill is a mandate that federal financial regulators, like the FDIC and the CFPB, must tailor their rules based on the specific risk level and business model of the institution they are regulating. Essentially, if a bank isn’t doing anything risky, the compliance burden—the hours, the staff, the cost—should be lower. This move aims to cut down on unnecessary overhead, particularly for smaller banks.

The End of the One-Size-Fits-All Rulebook

Section 2 is the big one. It requires agencies to ditch the "one-size-fits-all" approach for new regulations. Every time a new rule is proposed, the regulator must now document exactly how they considered the risk profile of different types of institutions and adjusted the rule accordingly. For example, if a new cybersecurity rule is proposed, the agency can’t just apply the same complex, costly requirements to a small-town community bank that handles basic checking accounts as they would to a massive international bank dealing in complex derivatives. They have to show their work and prove the burden is appropriate for the risk. This sounds great for efficiency, but the catch is that terms like “appropriate for the risk level” are pretty subjective, giving regulators a lot of wiggle room—or, potentially, giving institutions a lot of room to argue for less oversight.

A Break for Your Local Bank

For community banks, the bill offers a concrete win right away. Section 3 allows banks that qualify for the Community Bank Leverage Ratio—a measure designed for smaller, less complex institutions—to file short-form financial reports (called “call reports”) twice a year instead of the full, detailed version. Think of it like being allowed to file the 1040-EZ for your taxes instead of the full Schedule C and D. This is a direct reduction in paperwork and staff time for smaller banks, which could free up resources to better serve customers or extend local loans. For a small business owner, this means their local bank might be faster and more focused on the community rather than compliance.

Digging Up the Past 15 Years

Here’s where things get interesting, and potentially concerning. The TAILOR Act doesn't just apply to future rules; it mandates a look-back. Agencies must review every final regulation issued over the last 15 years and apply these new tailoring standards to them. If they find that an old rule is overly burdensome for certain low-risk institutions, they have three years to revise it. While proponents argue this is necessary to eliminate outdated, costly rules, critics will note that many consumer and systemic protections were put in place during that 15-year window. This review could be used to systematically weaken existing safeguards if the definition of “low risk” is stretched too thin, potentially exposing consumers and the public to greater risk down the line if oversight is reduced too much.

Modernizing the Watchdogs

Finally, the bill requires federal banking agencies to submit a comprehensive report to Congress within 18 months on how they plan to modernize bank supervision. This includes everything from examiner training to incorporating new technology and improving communication with the institutions they oversee. This section (Section 4) is focused on making the regulatory system smarter, not just lighter. The goal is to ensure the watchdogs are keeping pace with how fast the financial world is changing, which should, ideally, benefit everyone by making the system more stable and efficient.