02.24.25

Weakened Regulators a Mixed Blessing for Banking Industry

by: Ebrima Santos Sanneh

Efforts by the Trump administration to reduce the financial industry's regulatory burdens have been welcomed by banks, but the ongoing attempts to shrink the federal workforce
could have unexpected consequences in supervision and enforcement. "It's certainly possible that they will cut not just fat, but also muscle and bone," Ian Katz, an analyst with Capital Alpha Partners, said. "And if that happens, things can fall through the cracks." Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University and managing principal of Broadmoor Consulting, warned that reductions at regulatory agencies could create the conditions for risk to accumulate in the banking sector through diminished oversight. He also suggests that any attempt to bring them more directly under White House control could prompt the Democrats to act in a similar manner when they regain power "Reductions of the size experienced at the FDIC and in other agencies (around 40%) would seriously undermine enforcement capabilities and force regulators to let many problems fester," he said. "This could encourage some regulated entities to operate at the edge of legality, although this is an unwise course if one believes that there will be a Democratic president and Congress anytime soon, as much of this would be reversed."

Read the full article on American Banker