The Trump Administration is Targeting the FDIC, Putting Americans’ Financial Wellbeing at Risk
By Elyse Schupak
President Trump and co-conspirator Elon Musk have spent their first month in office taking a hatchet to many of the essential functions of the U.S. government. The independent agencies responsible for overseeing a stable banking system, transparent securities markets, and overall financial stability have not been spared from this chaotic and reckless spree. This includes the Federal Deposit Insurance Corporation (FDIC), the agency responsible for insuring Americans’ bank deposits since the Great Depression.
Last week, President Trump issued an executive order targeting independent federal agencies, including the FDIC, illegally requiring White House oversight of the agencies’ rulemaking authority, impounding appropriated funds for initiatives that conflict with Trump-Musk priorities, and requiring that the agencies adhere to executive branch interpretations of law.
The Trump Administration is considering other radical ideas for the FDIC as well, including rolling the agency into the Treasury Department or merging it with the Office of the Comptroller of the Currency (OCC), another independent agency that sits within Treasury. Formally shuttering the FDIC or consolidating it with another agency would require an act of Congress. Absent taking such a blatantly unconstitutional step, mass layoffs and employee transfers are being explored as a work around. Deferred resignation buyouts and layoffs have already resulted in a 10 percent cut of the FDIC workforce.
President Trump’s twofold attack on the FDIC—cutting staff and limiting the independence of those who remain—provides a new channel for President Trump and Elon Musk to enrich their friends on Wall Street and in the fin-tech and crypto industries, while leaving questions about the safety of Americans’ bank accounts unanswered and the imperative of long-term U.S. financial stability ignored.
A quick detour into the 20th century is relevant to understand the magnitude of what is being risked. Created in response to an epidemic of bank runs and failures in the early years of the Great Depression, the FDIC provides important functions on which most Americans rely, even if these functions often go unnoticed. FDIC deposit insurance has kept Americans’ bank deposits safe for nearly a century, preventing bank runs and ensuring that even if a bank does go belly up, deposits held at the bank up to a defined limit (currently $250,000) are safe. Deposit insurance is a cornerstone of financial stability. Yet the public has been offered no plan or explanation for how their money will be safe in the context of radical attacks on, or politicization of, the FDIC. It’s not even clear that the administration is aware of the potential impacts of such destabilizing actions.
The FDIC is also charged with regulating and supervising banks, ensuring banks have sufficient capital to withstand adverse economic events and are engaging in prudent risk management. The current system of bank supervision is not perfect. Public Citizen has argued that the FDIC should do more to integrate climate-related financial risk into its supervisory framework and address executive compensation schemes that can motivate unsafe banking practices. But the Trump Administration is uninterested in these or other measures to strengthen the FDIC’s regulatory oversight of banks. Instead they want to diminish the FDIC’s supervisory capacity by hollowing it out, paving the way for banks to take on more risk.
Job cuts and consolidation may appear to satisfy the short-sighted cost cutting ruse of Elon Musk and the so-called Department of Government Efficiency, but weakening and further politicizing financial regulation will lead to a riskier financial system and more long-term economic pain for the average American. Instability in the financial system can quickly spill over into the real economy. While the 2008 global financial crisis started with excessive Wall Street risk-taking and speculation, the consequences of these activities were felt most acutely by low- and moderate-income Americans. The 2008 financial crisis led to staggering rates of foreclosure—homeownership among Black Americans has yet to return to pre-crisis levels; job losses and prolonged high unemployment; and years of stagnating economic growth.
While personnel cuts at the FDIC will mean fewer people monitoring bank risk-taking, President Trump’s executive order on independent agencies aims to bring these agencies under closer White House control, limiting the ability of the FDIC and other financial regulators to act on the risks they do identify.
When the independence of financial regulators is compromised, efforts to maintain the safety and soundness of individual financial institutions and financial stability more broadly can be undermined. Political independence allows regulators to manage risks that banks and other financial institutions face and create for both themselves and the broader economy. Lack of independence can easily result in regulators turning a blind eye to risks that conflict with political priorities, whims, and personal interests. For example, we cannot expect an administration captured by the fossil fuel industry nor a president enriching himself through the sale of crypto tokens bearing his name to address risks to the banking system from climate change or digital assets—even if addressing these risks is appropriate to promote bank safety and soundness or broader financial stability.
The Trump Administration’s reckless treatment of the FDIC puts stability in the banking system, and in turn in the broader economy, at risk. Americans’ financial well-being should not be stuck in the cross hairs of Elon Musk’s move fast and break things ethos, nor should oversight of the banking system be sacrificed so President Trump can hand out deregulatory gifts to his industry allies.