Donald Trump's allies have discussed dismantling a Depression-era reform intended to prevent bank failures and maintain trust in the financial system, according to a report.
Sources told CNN that the president-elect's allies are interested in shrinking or even closing the Federal Deposit Insurance Corporation (FDIC) and giving the Treasury Department oversight of deposit insurance, but former regulators and academics say that makes little sense and questioned whether Congress would go through with that plan.
“This idea would pose an enormous risk of terrifying Americans about the safety of their deposits and triggering bank runs,” said Patricia McCoy, a law professor at Boston College and former federal regulator.
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The FDIC provides a safety net funded by the banking industry that protects customers from their bank going belly up with at least $250,000 in insurance provided to every depositor at each insured bank where they've got money, and while some believe there are too many bank regulators, experts doubt lawmakers would close this one.
“This has as much logic as asking if Trump can abolish Wednesday, and split it between Tuesday and Thursday,” said Aaron Klein, a senior fellow at the Brookings Institution and a former Treasury Department official who helped craft the Dodd-Frank Act in 2010. “The FDIC’s brand value to consumers is immense. Millions of Americans trust the FDIC insures their nest egg.”
The FDIC receives no congressional appropriations, and its deposit insurance fund covering trillions of dollars of deposits is instead funded by charging premiums on banks, not taxpayers, but sometimes those costs are passed on to bank customers through fees.
“This is one of the dumbest ideas anyone could have, and it’s a reflection of how incredibly out of touch billionaires are,” said Dennis Kelleher, CEO of the government watchdog Better Markets. “In 2008, the FDIC was absolutely pivotal in stabilizing the financial system and making sure the Great Financial Crisis didn’t become a second Great Depression. Eliminating the FDIC or cutting it back would be a disaster for the American people.”
The idea of ending or shrinking the FDIC has echoes of the right-wing Project 2025 blueprint for Trump's second term, but Congress has historically opposed calls to consolidate bank regulators, and experts think the threat against the agency is intended as a not-so-subtle message to the president-elect's appointees.
“If they don’t go along with the regulatory agenda of Donald Trump, there is an existential threat in the background that could be triggered,” said Mills. “In my mind, this is a way to work the umpire – before the umpire even takes the job.”