The oversight of US banks could be in for some big changes under Trump

The people in Donald Trump’s orbit are floating some dramatic ideas that would remake the way US banks are regulated, from deleting the CFPB to abolishing the FDIC.

There are lots of questions about whether any of the ideas, some of which would require acts of Congress, will come to pass.

But what is clear is that certain members of the new Trump administration who are set to take office do in fact want a different regulatory approach to the financial services industry as they look to remake the federal government and slash spending.

And that could mean lighter scrutiny, fewer rules, and perhaps less onerous requirements.

There are several early signs. One came from billionaire Trump supporter Elon Musk, who is leading the so-called Department of Government Efficiency (DOGE) alongside Vivek Ramaswamy.

His suggestion last month made on X was to "delete the CFPB" — a reference to the Consumer Financial Protection Bureau, an agency created after the 2008 financial crisis that has clashed with banks repeatedly.

"There are too many duplicative regulatory agencies," Musk said in his Nov. 27 post.

Another sign emerged this past week with a report in The Wall Street Journal of Trump advisers and officials from Musk’s DOGE asking potential regulatory nominees whether Trump could abolish the Federal Deposit Insurance Corporation (FDIC) and then move its deposit insurance function to the Treasury Department.

The FDIC currently acts as a backstop for money held by customers at thousands of US banks, insuring those deposits up to a level of $250,000 per account.

Read more: What is the FDIC, and how does it work?

There have also been discussions, according to the Journal report, about combining the FDIC with the two other agencies that oversee banks: the Federal Reserve and the Office of the Comptroller of the Currency (OCC).

Abolishing the FDIC (or the CFPB) would require an act of Congress, so some observers view either possibility as remote.

"Eliminating the FDIC is so out there," said former FDIC chair Sheila Bair on X, and thus she was “not sure it needs response.”

“FDIC has a perfect record of protecting insured deposits for over 90 years," added Bair, who was appointed by Republican President George W. Bush. "Strong consumer confidence in the brand, providing stability during crises.”

Just last year, in fact, the FDIC stepped in and absorbed the uninsured deposits of some sizable regional banks that failed, including Silicon Valley Bank and Signature Bank.

But there are plenty of people who operate within the banking and regulatory worlds who argue that some restructuring of these agencies is needed.

Former FDIC chair Bill Isaac, who was appointed by Republican President Ronald Reagan, said in a proposal last April that the current bank regulatory system is "complicated, inefficient, and badly broken."

"Our current bank regulatory system is the result of over two centuries of ad hoc 'band-aid' fixes to solve specific historical problems and crises, rather than overhauling the system with a design that will work long-term."

Isaac told Yahoo Finance he doesn’t believe the FDIC should be involved in the daily supervision of banks but warned against its outright elimination.

“I think it would be a serious mistake, and I feel very strongly about that. It's the banking system’s fail-safe,” Isaac said.

Former FDIC examiner Allen Puwalski on Friday also called for a renovation of bank supervision and regulation in a new LinkedIn post.

“At present our bank oversight system is inefficient and regularly ineffective," Puwalski wrote.

Puwalski, who is also a board member at New York regional bank Flagstar (FLG), suggested in his post that all bank supervision should be moved from the Fed and FDIC to the Office of the Comptroller of the Currency (OCC). The FDIC, he added, should go back to its original mission as a deposit insurer — as opposed to a bank supervisor.

He does not share the view that the FDIC should be abolished altogether.

"It’s simply too big a lift to eliminate the FDIC," he said on LinkedIn. "It can’t get done."

Advocates for big changes to the way banks are regulated could have some allies in Congress, which will be under GOP control starting in January.

A former banker, Rep. French Hill, was selected this week to lead the House Financial Services Committee. His agenda that was circulated before he got the post called for less stringent rules applying to regional banks.

He doesn’t want as many banks subject to CFPB oversight, according to that agenda, and wants bank agencies to review "the cumulative impact of their regulations."

A spokesperson for Sen. Tim Scott, who is likely to become the Republican chair of the Senate Banking Committee next year, said: "Scott has been clear in his concerns with the federal banking agencies, including recent supervisory failures and abuses of authority."

Scott, the spokesperson added, "looks forward to working with the incoming Trump administration to find solutions to streamline regulation, reduce red tape, and increase efficiency while ensuring the continued stability of our financial system."

But Republicans will also have slim majorities in the House and Senate, making any dramatic reforms more difficult to pull off.

Democrats would likely resist efforts to take power from the regulatory agencies, although their party did eliminate the Office of Thrift Supervision (OTS) after the 2008 financial meltdown.

Trump allies may also turn their attention to other agencies that have a bearing on what banks do, particularly the Securities and Exchange Commission.

Wall Street’s top cop will be led by Paul Atkins, who is expected to be friendlier to Wall Street and to the world of crypto. He replaces Gary Gensler, who has clashed repeatedly with some of the biggest players in cryptocurrencies — and with Musk.

Musk said on X Thursday that the SEC demanded he agree within 48 hours to pay a fine related to a probe of his 2022 purchase of the social media platform then known as Twitter.

“Oh Gary, how could you do this to me?” Musk said in his post.

Earlier in the day, Musk, in a separate post, called the SEC "just another weaponized institution doing political dirty work."

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