The Federal Deposit Insurance Corporation (FDIC) has been a cornerstone of America’s banking system for over 90 years, restoring trust in the financial sector during the Great Depression. Despite its reputation for effective deposit insurance and supervision, the FDIC’s fate is uncertain under the new Trump administration.
Sources have revealed that allies of President-elect Donald Trump have discussed dismantling the FDIC, transferring deposit insurance to the Treasury Department, and substantially shrinking or even closing the agency. Former regulators and academics have criticized the idea, citing the potential risk of triggering bank runs and undermining consumer confidence.
Sheila Bair, who led the FDIC during the 2008 financial crisis, called the idea a “REALLY BAD” one, highlighting the agency’s perfect record of protecting insured deposits over the past 90 years. Experts argue that abolishing or shrinking the FDIC would create confusion among depositors and undermine the stability of the financial system.
Others, including Dennis Kelleher, CEO of Better Markets, have praised the FDIC as one of the most successful agencies in American history, citing its role in stabilizing the financial system during the Great Financial Crisis. Kelleher warned that eliminating the FDIC would be a disaster for the American people.
While some conservatives, like Steve Moore and Douglas Holtz-Eakin, advocate for consolidating banking regulators, they do not support dismantling the FDIC. Holtz-Eakin called the agency a “highly successful regulator,” noting that people prefer the familiar and it would be a leap into the unknown for banks.
Despite concerns about the FDIC’s culture and potential for revision, it is unlikely that lawmakers would agree to shut down the agency. Former Treasury Department official Aaron Klein, a senior fellow at the Brookings Institution, noted that lawmakers overwhelmingly rejected a proposal to consolidate bank regulators after the 2008 financial crisis.
While the banking industry may appreciate the current regulatory landscape for its ability to slow down the process of imposing new rules, there is a realization that a bank super-regulator could swiftly impose a crackdown if the political winds shift.