SMART Act Cuts Bank Exam Frequency for Healthy Institutions Under $6 Billion, Prioritizing Efficiency Over Deep Scrutiny

The Supervisory Modifications for Appropriate Risk-based Testing Act of 2025, or the SMART Act, is essentially a plan to lighten the regulatory load on smaller, financially healthy banks and credit unions. If a bank or credit union has $6 billion or less in assets, is considered “well managed,” and “well capitalized,” this bill offers them a break from the constant regulatory treadmill.

The Every-Other-Time Rule

What does this mean in practice? Right now, federal regulators conduct full, on-site examinations regularly. Under Section 2 of the SMART Act, if one of these smaller, healthy institutions gets a full exam, the very next one will only be a “limited-scope review.” Think of it like getting a full physical one year, and then just a quick check-up the next. The idea is to save the institution time and money, but the bill leaves the exact scope of that second, lighter review entirely up to the federal agency, which introduces a bit of a gray area. This relief is immediately off the table, however, if the institution is already under a formal enforcement order or has had a recent change in control, which is the bill’s way of saying, 'If you’re already in trouble, you still get the full homework assignment.'

Combining Compliance Checklists

For those smaller institutions, the bill offers another time-saver: the ability to combine separate regulatory checks. Banks and credit unions usually have separate exams for things like safety, consumer compliance (making sure they follow rules like fair lending), and IT/cybersecurity. Section 2 allows these institutions to ask regulators to combine two or three of those into one simultaneous visit. For a community bank manager, this is huge—it means fewer disruptions and less time spent preparing for multiple regulatory visits. For the rest of us, the question is whether combining these critical reviews will mean less thorough scrutiny, especially in complex areas like cybersecurity, where risks are constantly evolving.

Less Time, Fewer Examiners

Section 3 of the bill focuses on making the examination process itself less disruptive. For any bank or credit union under the $6 billion threshold, regulators are now directed to use the “fewest examiners possible” and spend the “least amount of time” on site. They also have to try to schedule the visits at a time that works best for the institution and give them a heads-up about the specific issues they plan to cover. While this sounds like common sense efficiency, the language here is weak—regulators must “try to make sure” and “make every effort.” This aspirational language means the rule isn't a hard mandate, giving regulators an easy out if they need to spend more time or bring in more specialists.

The Trade-Off: Efficiency vs. Oversight

This bill is a classic trade-off between administrative efficiency and regulatory depth. It clearly benefits smaller banks and credit unions by cutting down on compliance costs and time spent catering to examiners. This could free up resources for them to better serve their communities. However, reducing the frequency of full, on-site examinations means that potential risks—whether it’s a slow erosion of lending standards or emerging IT vulnerabilities—might go undetected for longer. While regulators can still do off-site monitoring, there’s no substitute for a deep, in-person dive into the books. The public relies on robust consumer protection oversight, and when that oversight is intentionally thinned out, even for institutions deemed healthy, there’s a risk that problems could quietly build up until they become too big to ignore.