The Washington brief

Executive summary

• The likelihood of a late September government shutdown is high, due to strained relations following the massive tax bill and the recissions package, which have reduced goodwill among both Democratic negotiators and some Republican fiscal conservatives.
• While we expect Federal Reserve Chair Jerome Powell to serve the remainder of his term, we anticipate that the White House will nominate his replacement in early 2026.
• Bank regulation will likely shift as Trump-appointed agency heads continue to pursue holistic changes. The changes include a relaxation of capital requirements for the largest banks and potential modifications to the Basel III framework.
• In crypto, the recently passed GENIUS Act mandates stablecoin issuers to follow anti-money laundering laws. Looking ahead, the House-passed Digital Asset Market Clarity Act, which clarifies government oversight, should reach a Senate vote by late September

Our Take

Government shutdown risk high

After passing the One Big Beautiful Bill Act (OBBBA) and cryptocurrency legislation, Congress will largely be in recess through Labor Day. When they return on September 2nd, members of Congress will only have four months to pass lingering priorities and fund the government before the 2026 midterm elections become the dominant focus among lawmakers.

2026 Appropriations – Government shutdown

With narrow margins in Congress, passing legislation remains challenging. While Congressional Republicans and the White House have secured major wins, funding the government by September 30, 2025, will require at least 60 Senate votes. Accordingly, a shutdown remains likely given strained relations following the passage of OBBBA and the $9 billion recissions package, both of which have diminished goodwill among Democratic negotiators and some Republican fiscal hawks.

We recommend watching for these three things: First, if the Republicans can find common ground between the fiscal hawks and moderates on spending policy. Secondly, how the White House secures Democratic backing, which is necessary for passage. And lastly, how Leader Schumer balances his party’s priorities with avoiding political blame for a potential shutdown.

Changes in banking regulations and the Federal Reserve

Chair Powell & President Trump

For months, President Trump has openly criticized Federal Reserve (Fed) Chair Jerome Powell over handling of monetary policy. Most recently, President Trump and other Administration officials have focused on the enormous cost overruns of the renovation project for the Fed’s D.C. headquarters, which has occurred on Powell’s watch and insinuating that it could be grounds for firing him.

The potential risks associated with attempting to remove Powell outweigh the benefits in our view, particularly since Powell’s term concludes in May 2026. However, we believe that the White House will consider an alternative approach regarding Powell's succession. Fed Governor Adriana Kugler’s term is set to expire in January 2026. We expect Powell’s successor to be nominated when Governor Kugler’s term ends in January 2026 and then elevated to become Chair by May 2026. Then the White House would nominate a new Fed Governor once Powell’s seat is empty.

Bank regulatory updates

In June, the Federal Reserve and other banking regulators proposed lowered capital requirements for large banks, particularly by easing what is known as the Enhanced Supplementary Leverage Ratio (eSLR) for global systemically important banks. This aims to encourage holding more U.S. Treasuries and reserves. Additionally, in recent Senate testimony, Powell signaled reconsideration of the Basel III framework as a forthcoming regulatory focus.

At the end of July, the Federal Reserve hosted a major conference in Washington, D.C., where regulators, bankers, and other experts debated post-2008 regulatory frameworks and explored improvements. Discussions focused on updating leverage requirements, global bank surcharges, and annual stress tests. Industry voices also emphasized the need to finalize a new Basel III proposal to better balance risk and capital standards. As Trump-appointed agency heads pursue a holistic change to bank regulation, industry stakeholders also underscored the importance of finalizing a Basel III proposal.

Crypto updates

Following a volatile “Crypto Week,” three crypto bills advanced in Congress, with one signed into law. The GENIUS Act was passed with bipartisan support and signed by President Trump on July 18th. It sets requirements for stablecoin issuers, including anti-money laundering compliance, with regulators given until mid-July 2026 to implement rules. Additionally, the House passed the Anti-Central Bank Digital Currency (CBDC) Surveillance State Act, which would bar the Federal Reserve from issuing a central bank digital currency. This bill seems unlikely to garner enough support to clear the Senate.

The House passed the Digital Asset Market Clarity Act to clarify crypto market regulation between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The bill now heads to the Senate, where committees will review it and a final vote may occur by September's end.

Bottom line

Congress has only four months post-recess to address outstanding priorities and secure government funding before the 2026 midterms. Meeting the September 30, 2025, funding deadline will require overcoming the Senate’s 60-vote threshold. The recent passage of major bills has strained bipartisan goodwill. Upcoming topics include a possible replacement for Chair Powell, new financial regulations, ongoing crypto regulation discussions, and a likely Senate vote on the Digital Asset Market Clarity Act by September.