The next shock to our economy could come from anywhere. In the past 20 years, one major economic crisis started with bad mortgages, while the other started with a deadly virus. Since it’s impossible to predict or totally eliminate these risks, the best protection we have is to ensure that our economic infrastructure — specifically, our financial institutions — is strong enough to survive whatever threat comes next.
Unfortunately, the Trump administration is tearing away every layer of protection that was designed to fortify those institutions, leaving them, and our economy, vulnerable.
The first set of protections being gutted are the rules set by government agencies to keep banks, and the financial system, safe. Some of the most significant of these rules are the limits on the amount of debt banks can use to fund their risky bets, forcing them to put up some of their own money. These “capital requirements” are the difference between banks’ survival and failure, requiring taxpayers to bail them out. The requirements were strengthened after the 2008 financial crisis, and they helped banks weather the storm of Covid-19.
Almost all of these limits are being undone. Regulators are gutting the capital requirements that are sensitive to the riskiness of banks’ business, the ones that are risk-neutral, the ones determined by banks’ performance in annual stress tests and the ones that require additional protection for the “too big to fail” banks. This wholesale deregulation will allow banks to load up on more debt and have less of their own money available to absorb losses when their investments go south.
The second line of defense are bank examiners — the beat cops that go into the banks and make sure they are following the rules. Examiners look at the bank’s books and get to know its business. They assess transactions or loan files to make sure everything is kosher. If not, examiners work with the institution to make it right, without flashy headlines or lawsuits. If the bank cannot or refuses to make fixes, that’s when the lawyers get involved.
Americans get bang for their buck from examiners. They fix problems before they get too expensive for customers, courts, the economy or the banks. But the Trump administration has gutted the corps of examiners and proposed to curtail their authority all across the banking agencies. Last month, the Federal Reserve, which examines the biggest, most complex banks in the country, announced that it would reduce its supervision and regulation staff, which includes hundreds of examiners, by 30%. Two other banking regulators, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, have also drastically shrunk their ranks, while issuing a proposal that substantially limits their power to identify risks and require fixes.
The picture at the Consumer Financial Protection Bureau (known as the CFPB) is even bleaker. Instead of making sure banks won’t go bust, the CFPB’s purpose is to ensure that they can’t cheat or discriminate, with a particular focus on retail products like mortgages and credit cards. Sadly, the Trump administration’s ongoing attempts to (in Elon Musk’s words) “delete CFPB” have shrunk the examination staff from roughly 437 people to 50.
Not only are the ranks of examiners and supervisors shrinking, but so too are the regulators’ enforcement actions. When exams fail to find or fix illegal activity, regulators take the banks to court to get them to change their practices and return money to those who were hurt. In the first six months of 2025, though, the total number of enforcement actions against financial firms fell 37%, and penalties fell 32%. In the nine months before the Trump administration took over, the CFPB filed 33 enforcement actions. In the nine months since, it has only filed one.
That’s not to say that the status quo of bank regulation was perfect. In particular, bank supervision could use thoughtful reform. As financial institutions deploy new technologies, examiners need up-to-date tools and technologies to review transactions and reveal potential instances of banks or customers not complying with relevant laws. They need to focus on real risk rather than empty compliance exercises. Overlapping jurisdiction at the same financial institutions creates confusion and inefficiency. Remediation often takes too long. And specialized areas like supervision of anti-money-laundering laws need updating.
But reform must be careful. The cost of getting it wrong could be catastrophic.
Americans now have more choices in financial services, and banks often argue that they desperately need the government to slash rules that protect their stability and their customers so that they can compete with digital asset firms and nonbank lenders. But making safe banks unsafe means customers will only have bad choices.
A better answer is for Washington to craft reasonable rules to mitigate the risks in the private lending and digital asset industries so that they are safer, too. Washington has a habit of junking regulations during better times, directly leading to bigger busts. The Trump administration is running into that historical trap, scrapping critical bank rules and the people who enforce them at record speed. This is not a case of small changes. It is demolition. And our economy could be next.
