by Maya Jenkins, Senior Policy Analyst for Special Projects
Financial headlines these days are dominated by chaos and uncertainty.
Families across the country face soaring prices that have only gotten worse with the war in Iran. Worries abound over an artificial intelligence bubble, oil price shocks, gyrations in crypto, and rising default rates in the private credit markets. And economists have said that we may already be in a recession.
These emerging threats to economic stability are worrisome on their own. But they are made exponentially more dangerous by the Trump administration’s effort to dismantle the regulatory guardrails designed to stop economic stress from turning into the next financial crisis.
The Trump administration’s Banking Deregulatory Rampage
The Trump administration is systematically removing the safeguards designed to protect the economy when the risky bets made by Wall Street banks go bad. Most of these rules were put in place after the 2008 financial crisis and were intended to reduce the likelihood and severity of another financial crisis. As Bloomberg noted recently, “Donald Trump is going all in on deregulation.” In the past year alone, the administration unleashed a torrent of deregulatory banking policies, including (but certainly not limited to):
- Slashing bank oversight: Since January 2025, hundreds of bank examiners have left – or been pushed out – of their posts across the federal government, gutting agencies’ capacities to effectively protect consumers and the economy from ballooning risks.
- Ignoring the risks from non-bank financial firms: The Financial Stability Oversight Council (FSOC) is drastically weakening the process for designating which non-bank financial institutions could pose a systemic risk to the economy and should be subjected to enhanced supervision and regulation. This will leave FSOC unable to effectively monitor dangerous systemic risks building across large non-banks, including private equity and private credit funds.
- Turning stress tests into open book exams: The Federal Reserve (Fed) revealed their formerly secret stress-test model, making it easier for the biggest banks to game the system and obscure potential vulnerabilities.
- Weakening banks’ resiliency: The Fed, alongside other federal banking regulators, reduced the amount of capital that the eight largest and most systemically critical banks are required to hold as a cushion against losses, rendering those firms less resilient in face of stress and increasing the likelihood of the federal government bailing out Wall Street in the event of a megabank failure. The banking regulators have also proposed severely weakening the risk-based capital standards, letting banks borrow more to take on even riskier, more speculative investments that could put the entire financial system at risk.
- Inflating banks’ grades: The Fed significantly weakened the grading system it uses to assess whether some of the country’s largest banks are well capitalized, are liquid enough to withstand short-term stress, and have the internal controls needed to identify and mitigate emerging risks.
- Inviting more crypto risk into the economy: The Office of the Comptroller of the Currency (OCC) ignored longstanding federal law by carrying out a wholesale rewriting of the rules for what kinds of entities can obtain a trust bank charter, allowing firms to enjoy the enormous set of public privileges that come with a charter without fulfilling the regulatory obligations that have long accompanied ‘trust bank’ status. The OCC recently granted such a charter to the cryptocurrency exchange Coinbase – one charter applicant among many, including the Trump-backed crypto company World Liberty Financial, angling to profit by further enmeshing highly volatile digital assets into the broader financial system.
We’ve Seen it All Before
Today’s deregulatory actions – and plenty of others – are paving the way for the next financial crisis by tearing down the guardrails that were built in the wake of the 2008 collapse.
Each element of the Trump administration’s deregulatory agenda undermines critical safeguards designed to lessen the financial system’s susceptibility to contagion and collapse. The administration’s gutting of the financial regulatory system will line CEO’s pockets, boosting big bank profits by allowing them to make the kinds of excessively risky bets that pay handsomely in the short term but can create panics in the long term.
Take, for example, the administration’s weakening of bank supervision. Limited by their new, inflated rubric, federal regulators will now have a harder time spotting shortcomings in banks’ assessments and management before those shortcomings balloon into dangerous threats to financial stability. The Fed has lowered the grading bar so drastically that, under the new standards, Silicon Valley Bank – whose failure in 2023 was the third largest in U.S. history – would have been considered “well-managed” right up until its collapse. Under the previous supervisory framework, when banks’ risk-management was graded poorly, they may have faced restrictions in pursuing acquisitions, growing rapidly, paying out shareholders, or engaging in other activities that can be dangerous when performed on shaky ground. Today, those same poorly managed firms would not be graded as such, and could therefore be free to gobble up and poorly manage other banks, or grow larger in size, or lend or pay out dividends rather than maintaining sufficient capital levels. These kinds of unrestrained activities send Wall Street profits soaring. But when predatory financial products burden households with unsustainable debt, when speculative bubbles pop, poorly managed banks that have engaged in excessive risk-taking face unmanageable losses – and those losses can spread like wildfire throughout the financial system.
The whole of the Trump administration’s deregulatory efforts is far more dangerous than the sum of their deregulatory parts. The financial deregulation of the 1990s precipitated the 2008 financial meltdown. The post-crisis rules were put in place to make it harder for banks – particularly megabanks that can take down the system – to take inappropriate risks with their customers’ money, feeding dangerous bubbles with rampant speculation, and subjecting consumers and investors to unfair, deceptive, and abusive practices. The Great Recession, exacerbated by the 2008 financial crisis, eliminated $17 trillion in household wealth and cost tens of millions of families their homes and their jobs. The downturn erased 40 percent of Black and Latine household wealth. And while Wall Street bounced back within a few years, buoyed by a $29 trillion government bailout, most people were just getting back on their feet a decade later when the pandemic hit.
The administration is Ignoring the Past and Dooming us to Repeat it
Wall Street executives and allies inside the Trump administration are betting that the public has forgotten what deregulation can cost. Trump’s nominee for the new Federal Reserve Board chair, Kevin Warsh, was a board member in the years leading up to the crisis but failed to recognize or act to prevent the financial catastrophe.
Warsh’s complacency about the percolating and devastating risks to the financial system made the collapse possible. In 2007, he testified before Congress that mounting losses from subprime mortgage loans did not appear to pose systemic risks. Months later, the subprime mortgage market unraveled triggering “the most severe financial crisis since the Great Depression,” according to the Federal Deposit Insurance Corporation’s history of the crisis. Although Warsh ignored the risks, he was quick to backstop Wall Street once the crisis broke. He personally facilitated billions in bailouts, including to Morgan Stanley where he previously worked. Now, if confirmed, he will be the architect of the next deregulatory experiment that risks the financial system and the real economy.
But we have already been forced to grapple with the dangerous consequences of the first round of Trump deregulation. In 2018, the first Trump administration weakened bank oversight, reducing federal regulators’ ability to detect and address risks building up across the banking system. Those rollbacks – which pale in comparison to the deregulatory rampage we’re witnessing today – paved the way for the second, third, and fourth largest bank failures in U.S. history. In March of that year, three tech industry-focused banks – First Republic Bank, Silicon Valley Bank, Signature Bank – collapsed when the weight of their exposures to crypto- and interest rate-related risks sparked a wave of bank runs, including the largest single bank run in U.S. history. Banking regulators struggled to contain fears – stoked on social media by Big Tech CEOs and wealthy customers – that other banks serving similar clientele would soon meet their demise. Faced with the potential for a regional banking crisis, regulators invoked emergency powers that enabled them to use the FDIC’s Deposit Insurance Fund to protect millions of dollars in deposits for tech companies and high net-worth clients, rather than the $250,000 in insurance depositors ordinarily have access to when their bank fails. Since those three banks failed, several others have, including in Texas and Oklahoma. No Big Tech CEOs made a stink on social media and no emergency powers were invoked. Ordinary people and small businesses have, however, faced the prospect of losing their life savings.
The Fed and the FDIC later found that these banks were poorly managed by executives who took huge risks, profited from those risks, and walked away from the carcasses of their former companies with millions of dollars in bonuses. The Fed also found that, if not for then former President Trump’s deregulatory push, Silicon Valley Bank would have been more resilient in the face of crypto-related risk and supervisory staff would have acted more quickly to address the firm’s shortcomings.
Deregulation’s Next Act
President Trump’s demands for interest rate cuts, and the legal attacks his DOJ has launched on Chair Powell and Fed Governor Cook to try to force them to obey his policy demands have been the focus of Fed watchers’ attention. But the dangers of continuing and accelerating this deregulatory path are also enormous. When Wall Street is allowed to chase profits without strong rules and close oversight: firms fail, executives walk away with their multi-million dollar bonuses, the wealthy get bailed out, and working families are left to foot the bill.
The further the Trump administration strips away banking regulations, the more likely it is that this pattern will repeat itself. There are. With risks multiplying across the economy, now is a particularly dangerous time to weaken these time-tested safeguards. Ignoring the lessons of the 2008 financial crisis – and of the 2023 regional bank crisis – threatens everyone’s economic security.