Trump’s financial deregulation risks another US financial crisis, warns Martin Gruenberg

The United States could face another major financial crisis before the end of President Donald Trump’s second term, in case his government continues to weaken financial regulation and supervision, former Federal Deposit Insurance Corporation (FDIC) chairman Martin J Gruenberg has warned.

In his latest opinion piece published in The Economist, Gruenberg argues that Trump administration was repeating the mistakes of the past by weakening financial oversight and reducing the workforce of agencies responsible for monitoring risks.

Three financial crises, one recurring lesson

Gruenberg recalls the three major threats to the United States' financial system since the Second World War: the savings-and-loan crisis of the 1980s, the global financial crisis of 2007-09, and the regional banking crisis of 2023.

Each of these crises was preceded by a period of deregulation, weak supervision and inadequate safeguards, Gruenberg, who led the FDIC during the 2023 regional bank failures, argues in the piece.

“The savings-and-loan crisis of the 1980s was the result of thrifts doing high-risk commercial-property deals with weak capital requirements, while supervisors turned a blind eye, he writes adding that the global financial crisis of 2007-09 was prompted by a failure to supervise and to require adequate capital to limit the risks associated with subprime mortgage lending and the securitised products concocted to stoke that lending.

More recently, the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank in 2023 exposed vulnerabilities related to interest-rate and liquidity risks, rapid growth, and inadequate risk management.

Gruenberg's assessment of his career highlights failures of supervision and regulation as recurring contributors to financial crises. He argues that the lesson from each crisis was clear: periods of financial stability should be used to strengthen safeguards rather than weaken them.

What does Gruenberg say Trump is doing?

Gruenberg identified three major areas of concern.

First, he accuses the Trump administration of politicising financial regulation. Gruenberg writes that executive action has increased White House control over federal financial regulators, including the Federal Reserve in its regulatory capacity. Gruenberg also points out to a Supreme Court decision concerning presidential removal authority over leaders of independent agencies.

Greater political control could undermine the independence of regulators whose job is to act before financial risks become systemic, according to Gruenberg,

Staff cuts at financial regulators

Second, Gruenberg says that the Federal Reserve announced a 10 per cent workforce reduction in 2025, amounting to about 2,400 positions, while planning further cuts to its supervision and regulation division. Gruenberg also points to staffing reductions or planned cuts at agencies including the FDIC, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission.

“The Consumer Financial Protection Bureau faces a staggering proposed reduction of nearly 90%. This loss of experienced leadership, institutional memory and proven judgment would be particularly damaging should the financial system come under stress,” he writes.

Cutting experienced examiners and supervisors could weaken the government's ability to detect problems at financial institutions before they become crises, according to Gruenberg

The concern is particularly relevant given that reviews of the failures of Silicon Valley Bank and Signature Bank identified supervisory shortcomings.

Why does bank supervision matter?

Gruenberg criticised a Federal Reserve approach that, in his view, places greater emphasis on firms' material financial risks rather than processes and documentation that may appear less immediately consequential.

He writes that supervision should not simply respond after a major risk has emerged. Instead, regulators should examine whether banks have effective systems for identifying and managing risks, including adequate internal controls.

These issues were significant during the 2023 regional banking crisis, when weaknesses in risk management and supervision became apparent.

Capital requirements under scrutiny

Gruenberg's third concern is the proposed reduction in capital requirements for major banks.

“The federal banking agencies are weakening both leverage and risk-based capital requirements for the largest, most systemically important banks, thereby reducing their ability to withstand stress when the cycle turns. The agencies have already finalised a rule that would lower the leverage capital requirement for these banks by nearly 30 per cent,” the former FDIC chief says.

The experience of the 2007-09 financial crisis, he says, demonstrated why banks need strong capital positions before a crisis begins rather than attempting to build them after trouble emerges.

Why does it matter?

The FDIC is an independent US government agency that protects people who put money in banks. It insures deposits up to $250,000 per person for each account type if an insured bank fails. Congress created it in 1933 during the Great Depression to stop mass bank panics

Gruenberg served on the FDIC board during the global financial crisis and was chairman during the 2023 regional bank failures. He is a lecturer in the Yale Programme on Financial Stability.

If this deregulatory agenda and the undermining of supervisory institutions are not reversed, another financial crisis will erupt sooner rather than later.

His broader argument is that financial crises often appear unlikely during periods of stability, precisely when regulators and policymakers may face pressure to reduce oversight.

“Taken together, these policies greatly endanger financial stability. We must be clear about what is at stake. If this deregulatory agenda and the undermining of supervisory institutions are not reversed, another financial crisis will erupt sooner rather than later. And this time will not be different, except that the institutions we rely on to respond to such crises will lack the people, experience and resources to limit the costs,” he concludes.