The Federal Deposit Insurance Corporation (FDIC) was created during the Great Depression to restore trust in a financial system shaken by the failure of thousands of banks.
Today, during a time of distrust in government, the FDIC stands apart in the alphabet soup of bank regulators as a rare agency that many Americans trust. It has a long track record of protecting insured bank deposits, during good times and bad.
Yet it’s unclear whether the FDIC can survive Trump 2.0.
Sources told CNN’s Kayla Tausche that allies of President-elect Donald Trump have discussed the possibility of dismantling the FDIC, giving Treasury oversight of deposit insurance, and allowing the federal government to substantially shrink or even close the rest of the agency.
Former regulators and academics told CNN it makes little sense to shut the FDIC and Congress is not likely to greenlight such a 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.
The FDIC, through an industry-funded pool of money, provides a safety net to protect customers in case their bank goes bust. Each depositor is automatically provided at least $250,000 of insurance at each FDIC-insured bank they have money at.
Aaron Klein, senior fellow at the Brookings Institution, told CNN that while the United States has too many bank regulators, there is “no chance” lawmakers would approve shutting the FDIC.
“This has as much logic as asking if Trump can abolish Wednesday, and split it between Tuesday and Thursday,” said Klein, 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 Trump transition team did not respond to a request for comment.
‘A REALLY BAD idea’
Sheila Bair, who led the FDIC during the 2008 financial crisis when a number of major banks collapsed, blasted the idea of eliminating the FDIC as a “REALLY BAD idea” in a post on X.
“FDIC has a perfect record of protecting insured deposits for over 90 years,” Bair said in her post. “Changing the guarantor would create confusion among depositors who are comforted by the ‘FDIC Insured’ sign at their banks.”
The FDIC’s operations, which also includes supervising and examining more than 5,000 banks and savings associations, do not receive congressional appropriations. Its deposit insurance fund, which insures trillions of dollars of deposits, is funded by charging premiums on banks, not by taxpayers. Sometimes, those costs can be transferred to bank customers in the form of fees.
Sources told CNN that Trump allies have also discussed other efforts to streamline the authority of bank regulators, including transferring the non-monetary authority of the Federal Reserve to the Office of the Comptroller of the Currency and reorganizing the Consumer Financial Protection Bureau, the brainchild of Sen. Elizabeth Warren.
Warren is not a fan of blowing up the FDIC.
“When rumors take off that banks may not have enough money to cover all their deposits, people rush to withdraw their money. The FDIC’s deposit insurance was designed to reassure Americans that their money is safe,” Warren said in a statement to CNN. “I don’t know why anyone would want to create uncertainty around the FDIC’s commitment to financial stability or undermine a cop on the beat protecting Americans from another financial crash.”
The idea of abolishing or shrinking the FDIC, first reported by The Wall Street Journal, has echoes of Project 2025, the white paper published by conservative think tank Heritage Foundation that has served as a blueprint for how some conservatives think Trump 2.0 should operate.
Still, it’s hardly a new idea to shut or merge banking regulators. Prior to the 2008 financial crisis, then-Treasury Secretary Hank Paulson proposed merging multiple the Securities and Exchange Commission (SEC) with the Commodity Futures Trading Commission (CFTC) and combining the Office of the Comptroller of the Currency (OCC) with the Office of Thrift Supervision (OTS).
Ultimately, Congress decided in the Dodd-Frank overhaul to shut the OTC, but lawmakers also created the CFPB.
‘Disaster for the American people’
Some who argue for tougher regulation of big banks were dismayed by the idea of shutting the FDIC.
“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 Better Markets, a government watchdog focused on financial reform.
Kelleher praised the FDIC as one of the most successful agencies in American history and the “gold standard” for effectively managing bank failures in a way that minimizes losses to bank customers.
“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,” said Kelleher. “Eliminating the FDIC or cutting it back would be a disaster for the American people.”
Some conservatives oppose dismantling the FDIC, too.
Steve Moore, a conservative economist who has advised Trump, told CNN he’s “not in favor of shutting” down the FDIC, though he did say there is a need to consolidate banking regulators.
Douglas Holtz-Eakin, president of American Action Forum, a center-right think tank, said he doesn’t think the FDIC will go anywhere, because there is a lot of allegiance to the current system.
“People prefer the familiar,” Holtz-Eakin said. “It would be a leap into the unknown for the banks.”
Holtz-Eakin called the FDIC a “highly successful regulator.”
“It’s not like it’s a basket case,” he said.
Too many banking regulators?
That’s not to say America’s banking regulation system is perfect. There is room to improve the FDIC and its sister banking regulators.
The culture at the FDIC has come under fire in recent years over allegations of a toxic workplace marked by sexual harassment, discrimination at bullying.
And some experts say there is a case to be made for streamlining the confusing maze of financial regulators where some duties overlap.
“Our financial regulatory framework is nothing short of a Frankenstein’s monster,” said Isaac Boltansky, director of policy research at BTIG.
While Boltansky said there’s an “undeniable argument” that the regulatory framework is ripe for revision, he struggles to see how this issue makes it to the agenda or gets support from Democrats
Yet it’s unlikely that lawmakers would agree to shutting the FDIC.
Klein, the Brookings senior fellow, noted that after the 2008 financial crisis, lawmakers overwhelmingly rejected a proposal to consolidate bank regulators.
“It has historically almost no support in Congress,” Klein said.
A not-so-subtle message
It’s not even clear that the banking industry would want to shut bank regulators, because it could backfire.
“The industry loves to play regulators against each other,” said Ed Mills, Washington policy analyst at Raymond James.
The cumbersome bank regulatory landscape slows the process of imposing new rules on banks because it’s hard to get all the regulators to be on the same page. It’s easy for the process to get bogged down in bureaucracy.
Although banks may be rooting for swift deregulation under Trump, there is also a realization that eventually the political winds will shift. And when that happens, a bank super-regulator could swiftly impose a crackdown.
“The banks wouldn’t want a super-regulator if AOC (Alexandria Ocasio-Cortez) is president,” Mills said.
The Bank Policy Institute, a trade group that represents Bank of America, JPMorgan Chase, Wells Fargo and other big banks, declined to comment on the FDIC news.
Mills said there’s “about zero-percent chance” that the FDIC is abolished under Trump, noting such a move would require 60 votes in the US Senate, a very tall order.
Rather than a serious idea, Mills sees the news about killing the FDIC as a way to send a not-so-subtle message to Trump 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.”
CNN’s Kayla Tausche contributed to this report.
