One Big Beautiful Bill Act: A lifeline for community banks, but challenges loom for industry

As the dust settles on the passage of H.R. 1, the “One Big Beautiful Bill Act” from the 119th Congress, it’s clear this omnibus legislation represents a pivotal moment for the US banking sector. Drawing from reconciliation efforts and incorporating elements of the ACRE Act, H.R. 1 blends tax reforms, regulatory adjustments, and energy policy shifts aimed at bolstering traditional economic drivers like agriculture and fossil fuels.

At CCG Catalyst, we’ve advised many banks on strategic planning and digital transformation, and I’ve seen firsthand how such policies can reshape the competitive landscape. Maybe it is my Washington, D.C. roots or being raised in a government family, but I’ve always kept a keen eye on The Hill and how it impacts my clients. The bill is grounded in tangible tax incentives and regulatory relief, and in my opinion, it smartly prioritizes community banks, which are the backbone of local economies. However, it falls short in fostering the innovation larger institutions need to thrive globally. Let’s break it down by bank type, focusing on the advantages and disadvantages as we navigate this new terrain.

Community Banks: A much-needed boost for local heroes

Community banks, those vital institutions with under $10 billion in assets that hold 63% of agricultural loans and 37% of small business lending nationwide, stand to gain the most from One Big Beautiful Bill. In my view, this is a win for grassroots banking, countering years of consolidation pressures that have squeezed these lenders.

The standout advantage is the tax exclusion on interest from rural and agricultural loans under Section 70435. This provision excludes up to 25% of interest income on qualified loans secured by rural or agricultural real property (with principal caps at $5 million), directly reducing tax burdens and incentivizing more lending in underserved rural areas. For a typical $1 billion ag-focused portfolio at 5% interest, this could translate to $1 million-$5 million in annual savings at the 21% corporate rate. These funds can then be reinvested in community development.

Coupled with the permanent extension of Section 199A 20% qualified business income deduction and related provisions treating certain S corporations as financial institutions for interest expense limits, these changes enhance capital flexibility for the roughly 3,000 Subchapter S community banks, making it easier to raise funds without dilution.

Regulatory tailoring in Title III further sweetens the deal, indirectly, primarily by reducing the CFPB’s funding cap from 12% to 6.5% of Federal Reserve earnings. While this doesn’t repeal burdensome CFPB Section 1071 data collection rules on small business loans (which remain in effect but with compliance delayed to July 2026 and later), it could limit the agency’s resources for enforcement, potentially easing compliance burdens. Industry groups suggest this might lower costs, though estimates vary — perhaps by 10-15% of operating expenses in some cases, preventing “supervisory creep” and promoting de novo bank formations, something I’ve long advocated for to revitalize local banking. The permanent extension of 100% bonus depreciation (Section 70301), effective for property placed in service after January 19, 2025, and restoration of immediate R&D expensing under Section 174, effective for taxable years beginning after December 31, 2024 — both retroactive to align with the start of the Trump administration, also aid tech upgrades, improving cash flow for small-scale investments.

However, not all is rosy. The termination of clean energy credits (Section 70550) for EVs, alternative fuels, and efficient homes post-2025 could dampen demand for sustainable ag financing, potentially costing 5-10% of portfolios in revenue. Unaddressed credit union tax exemptions allow them to continue acquiring community banks, eroding market share by up to 20% in some locales. And while the bill lacks specific stablecoin regulations to limit nonbank lending, any lax enforcement risks deposit migration, potentially shrinking lending capacity by 5-10%. In my opinion, these gaps could undermine the bill’s pro-community intent if not addressed in future tweaks.

Regional Banks: Opportunities tempered by growing pains

For regional banks ($10 billion-$100 billion in assets), One Big Beautiful Bill Act offers balanced relief, but it demands strategic pivots to capitalize on growth while managing compliance hurdles. These institutions, often spanning multiple states, benefit from operational efficiencies that align with CCG Catalyst’s focus on digital transformation and risk management.

Key advantages include the permanent 199A deduction (Section 70105) and bonus depreciation (Section 70301), bolstering taxes on diverse portfolios and aiding small business and commercial lending with potential savings of $10 million-$50 million for a $50 billion-asset bank. The CFPB funding cuts (Section 30001) could indirectly stabilize funding by reducing regulatory oversight intensity.

Yet, disadvantages loom large. Ending green credits shifts focus on volatile fossil fuels, with potential for $50 million-$200 million revenue losses in clean energy segments. Persistent CFPB data rules on small business loans under Section 1071 could add $10 million-$30 million in annual costs, as the bill doesn’t repeal them. Foreign tax modifications (Sections 70311-70313) may limit international dealings. Competition from stablecoins and industrial loan companies (ILCs) could erode 5-10% market share if not fully curbed, as the bill doesn’t address them directly. From my experience advising on bank-fintech fusions, regionals must adapt by embracing traditional energy lending, but I believe the bill could do more to level the playing field against nonbanks.

National Banks: Domestic wins overshadowed by global headwinds

National banks (over $100 billion in assets) see minimal tailored benefits from One Big Beautiful Bill Act, with advantages skewed toward systemic stability rather than transformative growth. As global players, they grapple with the bill’s emphasis on domestic priorities, which I see as a missed opportunity for fostering US banking innovation on the world stage.

Advantages include higher alternative minimum tax exemptions (Section 70107) and adjustments to foreign income taxes (Sections 70321-70323, including GILTI rate changes), potentially yielding over $100 million in savings to free capital for lending. The R&D expensing restoration supports massive fintech investments, deferring billions in taxes.

Disadvantages, however, are pronounced. Clean energy terminations (Sections 70513-70514) disrupt sustainable finance divisions (20-30% of some portfolios), leading to $1 billion-plus annual losses and heightened fossil fuel risks. Repeals of controlled foreign corporation deferrals (Section 70321-70323) add $500 million-$1 billion in foreign income taxes, while foreign entity restrictions in energy credits curb Asia-Pacific growth. Persistent AML costs exceed $100 million without proportional relief, and nonbank competition erodes share. In my opinion, this inward focus risks ceding ground to international rivals; national banks need policies that champion global fintech integration, not just domestic energy.

A step forward, but more reforms are needed

Overall, One Big Beautiful Bill could boost community bank profitability by 5-15%, providing a lifeline against consolidation and affirming their role in local economies. A policy direction I strongly endorse. Regionals get tools for efficiency, but nationals face headwinds that could stifle innovation. To truly empower the sector, policymakers should tackle credit union taxation, enhance green incentives for balanced growth, and strengthen anti-non-bank measures.

As we look at 2026 implementation, optimism for community revitalization is warranted, but vigilance on global competitiveness is essential. The banking industry deserves policies that fuel both tradition and transformation.