The federal government launched the FDIC in the aftermath of the Great Depression. Photo: Diego M. Radzinschi/ALMPresident-elect Donald Trump and his team of advisers, including Elon Musk, are exploring radical changes to bank regulation, including shutting down the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau or folding them into other agencies, according to news reports.
However, former officials and legal experts say that eliminating those agencies, which protect the public from bank failures and abusive financial practices, is highly improbable, even with the White House and both chambers of Congress controlled by Republicans.
While the financial sector has bemoaned what they perceive as overregulation under the Biden administration, few bankers, if any, would welcome the elimination of the FDIC.
“It would make bankers very nervous,” said Bill Isaac, who became an FDIC board member in 1978 and was chairman from 1981 and 1985 under President Ronald Reagan. “The FDIC is the glue that holds the whole banking industry together. Getting rid of it is a very bad idea.”
As evidence, Isaac pointed to his seven years with the FDIC, during which the agency handled some 3,000 bank failures, including nine of the 10 largest banks in Texas, the most banking insolvencies since the Great Depression.
The FDIC was tested as recently as last year, when the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank shook confidence in the banking system.
President Franklin Roosevelt created the FDIC as part of his signing of the Banking Act of 1933, which was aimed at restoring the public’s confidence in the banking system following the Great Depression.
The FDIC was created in 1933 as a means to stabilize the country’s financial system and instill public confidence. Today, it insures consumers with up to $250,000 in deposits in banks.
“Eliminating the FDIC is so out there, not sure it needs response,” Sheila Bair, the FDIC chair from 2006 to 2011, wrote on the social media platform X. “FDIC has a perfect record of protecting insured deposits for over 90 years. Strong consumer confidence in the brand, providing stability during crises.”
Bair’s FDIC tenure encompassed the Great Recession, which ran from 2007 and 2009 and was marked by the collapse of financial institutions and the housing market. Congress created the CFPB in 2010 to address failures on consumer protection that crisis exposed.
Created under President Barack Obama, the CFPB has never been popular with Republicans. Musk last month called for its elimination, saying, “There are too many duplicative regulatory agencies.”
Sources told the Wall Street Journal that Musk and Vivek Ramaswamy, who are co-chairs of Trump’s Department of Government Efficiency, or DOGE, have participated in interviews with candidates for financial regulatory posts in the Trump administration.
While some Republicans consider the funding mechanism for CFPB unconstitutional, the U.S. Supreme Court rejected that claim earlier this year.
And the next administration might even reinforce the CFPB in its mission.
In September, Trump proposed to cap credit card interest rates at 10%, less than half than their current level. The proposal is similar to the CFPB’s credit card penalties final rule adopted earlier this year.
However, a report by Jim Sandy, an attorney with the New Orleans-based law firm McGlinchey Stafford, says that it’s likely a new CFPB director under the Trump’s administration will revoke or revise nonrulemaking guidelines issued by current director Rohit Chopra, such as policy statements and interpretive rules.
“Director Chopra has frequently relied on such guidance to shape the Bureau’s policies, often at the expense of the more formal and time-consuming notice-and-comment rulemaking process,” Sands wrote in the report. “Such guidance only has power and force if the new Director supports it. For example, a new director will likely revise or rescind the circular warning against “deception” in contract fine print, among others.”
Meanwhile, the uncertainty looming over the future of these banking regulators is posing an obstacle to finding people to fill leadership positions.
The Financial Times reported that a number of qualified candidates have declined invitations to consider heading the CFPB.
“It’s difficult to recruit people until these issues are settled,” Isaac said. “Whatever we’re going to do, we need to get on with it. It shouldn’t take a lot of time.”
While many baners believe reforms are long overdue, major changes are not expected anytime soon.
In a report titled “It’s Broken, So Let’s Fix It: A New Path for U.S. Bank Regulation,” Isaac proposed creating a Federal Financial Regulatory Board to update and streamline oversight.
“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,” the report said. “The result is today’s system, which is complicated, inefficient, and badly broken. While unnecessarily doubling up regulatory attention in some areas, many other areas are allowed to slip through the cracks.”
Under Isaac’s proposal, the FDIC’s bank and regulatory responsibilities would move to the FFRB, but the FDIC would retain responsibility for the deposit insurance fund and troubled bank resolution, while the CFPB would continue to be the primary consumer financial protection agency but would operate with congressional funding independent from the federal government and the FDIC.
But in the end, it’s far easier and traditionally more common to talk about bank reforms than enact them.
Isaac, who serves as chair at the Secura/Isaac Group, an advisory firm headquartered in New York, expects no changes in the near future based on his years of experience seeing ideas and recommendations to improve banking regulations shot down.
“The time for reform is now,” Isaac says. “But if I were a betting person, I would bet nothing will happen.”
