Donald Trump has officially revealed when America was last “great”: the 1930s.
Back in that golden era, there was no polio vaccine. The United States instigated a series of debilitating, beggar-thy-neighbor global trade wars. Sympathies for fascism and isolationism were rising (look up the history of the “America First” slogan). And Americans were wading through the remains of our banking system, whose collapse had kicked off the Great Depression.
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Apparently, the president-elect’s transition team sees this period as America’s glory days.
Some of Trump’s 1930s-ish plans have received a fair amount of media coverage, such as his anti-vaccine nominees for senior health jobs, and his thirst for new trade wars. But less attention has been afforded to his threats to the U.S. banking system, which Trump seems intent on making more vulnerable to crises.
Consider the troubling idea to abolish the Federal Deposit Insurance Corporation, as the Wall Street Journal recently reported. Congress founded the FDIC in 1933 in response to a series of painful, “It’s a Wonderful Life”-style bank runs. Hordes of panicked customers tried to pull their money out of banks all at once because they worried their cash would not be safe, causing thousands of banks to collapse.
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In the 90 years since, the FDIC has run a national insurance system for deposits, up to certain limits, so that customers can trust that their money would be protected if their bank got into trouble. The independent agency also supervises the banks it insures to prevent them from getting into trouble in the first place. (Knowing you’re backed by insurance can lead to riskier behavior, after all.)
Trump’s transition team is unhappy with this arrangement.
It has reportedly been asking potential nominees whether it’s possible to kill the FDIC altogether, as well as potentially shrinking, eliminating and consolidating other bank regulators and supervisors. Under such proposals, the FDIC’s deposit insurance function might be absorbed into the Treasury Department, the Journal reported; it’s not clear which other government agency, if any, would take over the FDIC’s other responsibilities, such as supervision and resolving bank failures. (Similar consolidation proposals were laid out in the Project 2025 playbook, which Trump repeatedly swore he had nothing to do with.)
It’s certainly true that our patchwork financial regulatory system could use streamlining. “Even Rube Goldberg could not have imagined our current regulatory framework, so making the system more effective (and less costly) could be a bipartisan thing,” said Kermit Schoenholtz, an emeritus professor who taught money and banking at New York University. “The question is whether the purpose here is to make it more or even less effective.”
If the goal of consolidation is to help regulators spot and address risks in the financial system wherever they occur — in traditional banks, nonbanks, markets, infrastructure, etc. — that would be fantastic. But there’s a difference between making government more effective and making it disappear, and Trump appears to be aiming for the latter.
How do we know? Financial deregulation was one of his major priorities during his first term. He rolled back parts of the Dodd-Frank Act, a law created in response to the 2008 financial crisis. The big banks also took on more leverage while he was in office, suggesting his appointees tolerated more risk-taking.
Since then, President Joe Biden’s appointees have proposed a series of regulations to reduce risk and make the financial system more resilient, including by requiring large banks to have a bigger capital cushion. Wall Street has fought these efforts ferociously, even running ads about them during “Sunday Night Football.”
The banks might soon get their way. Shortly after the November election, financial regulators announced they were pausing any major rulemaking, including on capital requirements, until Trump takes office. Wall Street firms and lobbyists have drafted wish lists of (de)regulatory changes they want the transition team to commit to, Reuters has reported. And more of Dodd-Frank appears to be in the crosshairs, especially if Project 2025 is implemented.
It’s no surprise then that bank stocks surged after the election. They’re expected to soon be “unshackled” by regulation, freeing them to take on a lot more risk. But taxpayers will still presumably be on the hook if the banks’ risk-taking goes awry.
Right now seems like a peculiar time for any pre-FDIC-era nostalgia. After all, last year was the biggest year for bank failures in modern history, thanks to a crisis that took down Silicon Valley Bank, Signature Bank and First Republic. Runs on these regional banks threatened contagion across the rest of the financial system — at least until federal regulators (including the FDIC) stepped in to stem the panic and protect depositors.
MAGA World appears unchastened by either this experience or that of the early 1930s. Or maybe they take it as a challenge: You’ve heard of the Great Depression? Just wait until Trump delivers the greatest one of all.
Back in that golden era, there was no polio vaccine. The United States instigated a series of debilitating, beggar-thy-neighbor global trade wars. Sympathies for fascism and isolationism were rising (look up the history of the “America First” slogan). And Americans were wading through the remains of our banking system, whose collapse had kicked off the Great Depression.
Make sense of the latest news and debates with our daily newsletter
Apparently, the president-elect’s transition team sees this period as America’s glory days.
Some of Trump’s 1930s-ish plans have received a fair amount of media coverage, such as his anti-vaccine nominees for senior health jobs, and his thirst for new trade wars. But less attention has been afforded to his threats to the U.S. banking system, which Trump seems intent on making more vulnerable to crises.
Consider the troubling idea to abolish the Federal Deposit Insurance Corporation, as the Wall Street Journal recently reported. Congress founded the FDIC in 1933 in response to a series of painful, “It’s a Wonderful Life”-style bank runs. Hordes of panicked customers tried to pull their money out of banks all at once because they worried their cash would not be safe, causing thousands of banks to collapse.
Follow Catherine Rampell
In the 90 years since, the FDIC has run a national insurance system for deposits, up to certain limits, so that customers can trust that their money would be protected if their bank got into trouble. The independent agency also supervises the banks it insures to prevent them from getting into trouble in the first place. (Knowing you’re backed by insurance can lead to riskier behavior, after all.)
Trump’s transition team is unhappy with this arrangement.
It has reportedly been asking potential nominees whether it’s possible to kill the FDIC altogether, as well as potentially shrinking, eliminating and consolidating other bank regulators and supervisors. Under such proposals, the FDIC’s deposit insurance function might be absorbed into the Treasury Department, the Journal reported; it’s not clear which other government agency, if any, would take over the FDIC’s other responsibilities, such as supervision and resolving bank failures. (Similar consolidation proposals were laid out in the Project 2025 playbook, which Trump repeatedly swore he had nothing to do with.)
It’s certainly true that our patchwork financial regulatory system could use streamlining. “Even Rube Goldberg could not have imagined our current regulatory framework, so making the system more effective (and less costly) could be a bipartisan thing,” said Kermit Schoenholtz, an emeritus professor who taught money and banking at New York University. “The question is whether the purpose here is to make it more or even less effective.”
If the goal of consolidation is to help regulators spot and address risks in the financial system wherever they occur — in traditional banks, nonbanks, markets, infrastructure, etc. — that would be fantastic. But there’s a difference between making government more effective and making it disappear, and Trump appears to be aiming for the latter.
How do we know? Financial deregulation was one of his major priorities during his first term. He rolled back parts of the Dodd-Frank Act, a law created in response to the 2008 financial crisis. The big banks also took on more leverage while he was in office, suggesting his appointees tolerated more risk-taking.
Since then, President Joe Biden’s appointees have proposed a series of regulations to reduce risk and make the financial system more resilient, including by requiring large banks to have a bigger capital cushion. Wall Street has fought these efforts ferociously, even running ads about them during “Sunday Night Football.”
The banks might soon get their way. Shortly after the November election, financial regulators announced they were pausing any major rulemaking, including on capital requirements, until Trump takes office. Wall Street firms and lobbyists have drafted wish lists of (de)regulatory changes they want the transition team to commit to, Reuters has reported. And more of Dodd-Frank appears to be in the crosshairs, especially if Project 2025 is implemented.
It’s no surprise then that bank stocks surged after the election. They’re expected to soon be “unshackled” by regulation, freeing them to take on a lot more risk. But taxpayers will still presumably be on the hook if the banks’ risk-taking goes awry.
Right now seems like a peculiar time for any pre-FDIC-era nostalgia. After all, last year was the biggest year for bank failures in modern history, thanks to a crisis that took down Silicon Valley Bank, Signature Bank and First Republic. Runs on these regional banks threatened contagion across the rest of the financial system — at least until federal regulators (including the FDIC) stepped in to stem the panic and protect depositors.
MAGA World appears unchastened by either this experience or that of the early 1930s. Or maybe they take it as a challenge: You’ve heard of the Great Depression? Just wait until Trump delivers the greatest one of all.
