Trump Cuts Thousands of Wall Street Cops While Markets Swing

(Bloomberg) — Donald Trump’s administration is set to shrink the ranks at the top US financial regulators by more than 2,300 workers, a group that includes bank examiners, criminal investigators and economists.

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The cuts are the steepest in decades for the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Securities and Exchange Commission, the primary agencies responsible for oversight of banks, trading houses and the public markets.

At the same time, the agencies are rapidly juggling their remaining staff and adjusting policies. The OCC has said it will combine supervision teams that were previously tailored to banks by size, and the SEC has reorganized its regional offices. The FDIC has yet to announce significant changes, but officials are rethinking its approach to bank supervision, according to people familiar with internal discussions.

Defenders of the downsizing, which includes buyouts, layoffs, early retirements and hiring freezes, see it as part of the administration’s stated goal of rolling back rules to boost growth and unleash lending. The agencies shrunk during Trump’s first term, too, by about 1,000 employees from 2016 to 2020 — half the level of reductions proposed since his second inauguration.

But to critics, fewer examiners and investigators are a harbinger of weaker oversight and an invitation to excessive risk-taking, particularly as Trump’s trade policies have caused extreme market swings, and calls of an impending recession have some banks bracing for higher credit losses.

Even in the best of times, “overburdened and under-experienced staff could be unable to recognize brewing risks to the financial system,” said Michele Alt, a former official at the Office of the Comptroller of the Currency and now a partner at the financial-services advisory firm Klaros Group.

The current administration instituted the government-wide job cuts as part of a broader campaign to save $1 trillion in federal spending. That rationale confounds critics, who note that the top banking and markets watchdogs don’t receive taxpayer funding: They pay for themselves — and sometimes turn a profit — through fees, licensing revenue and fines to firms they oversee.

Since 2015, the FDIC collected $74 billion more than it spent, most of which accrues to the agency’s bedrock insurance fund that protects depositors during bank failures. The OCC has run a $107 million surplus during the same period.

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On the other hand, failures of oversight can be very expensive, said Jeremy Kress, a former Fed bank-policy attorney who now teaches business law at the University of Michigan.

“While reducing staff might yield short-term cost savings, any near-term benefits are likely to be dwarfed by the long-term costs of weaker financial oversight, more reckless risk-taking, and more frequent bank failures,” he said.

Representatives from the FDIC, SEC and the OCC declined to comment.

Historically, agency headcount has fluctuated not only with political priorities but in response to the demands of firms and the markets. The FDIC in particular has seen spikes after periods of bank failures, then shrunk when the crises abate. That left the agency short of bank examiners following collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank, according to a 2023 staff report.

A different report by the agency’s inspector general the same year pointed out that nearly 40% of the FDIC’s employees would be eligible for retirement by 2027.

If retirements continue apace, long-tenured workers take the buyout and probationary employees are dismissed, mid-career staff are left to manage both the tasks for which they lack important institutional memory and the lower-level tasks from which they’d previously graduated, Alt said.

Some banks say they’re already noticing changes, including a shift to younger, less-familiar faces among their usual regulators. Privately, that has spurred worry among some executives, who say they rely on consistent relationships with staff who can engage or answer questions before problems arise.

Even those who have been pushing for deregulation for a long time say the current job cuts and reorganizations miss the point. Undoing rules, withdrawing proposals and rewriting guidance requires smart, skilled staff, analysts and attorneys say, not a hobbling of agencies.

“The problem with bank supervision is not lack of personnel, but rather where they are deployed, how they are supervised by senior officials, and the extent to which the agencies demand rapid action on problem institutions,” said Karen Shaw Petrou, the managing partner at Federal Financial Analytics, a Washington-based consulting firm.

CFPB

The Trump administration has also attempted to terminate thousands of staff at a fourth regulator, the Consumer Financial Protection Bureau. The government has declared its intention to shutter the agency, which was created by Congress in the wake of the 2008 financial crisis to oversee consumer products like credit cards and student loans.

Unlike the more longstanding regulators, the CFPB has been a political lightning rod since its creation. Democrats have continued to tout the agency as a necessary check on corporate power and a guardian of wealth for ordinary Americans, against the attacks of Republicans and business groups who claim it lacks accountability.

After several failed efforts by the finance industry to defund the consumer watchdog through the court system, it became an immediate target for Trump in the early days of his second term.

An initial attempt to cut most of the CFPB’s 1,700 employees was temporarily halted by a federal judge. So far, some 200 people have been laid off or fired, while lawyers argue the future of the rest of the staff in court.

The CFPB didn’t respond to a request for comment.

The consumer watchdog has said it would shift its enforcement focus back to banks under Trump after broadening its supervision of non-bank firms and stepping up oversight of tech platforms offering payment services, during the Biden administration, but emphasized that it would cut “supervision events” in half.

—With assistance from Paige Smith, Yizhu Wang, Emily Mason and Dave Merrill.

(Updates to include FDIC response in eleventh paragraph.)

Trump Cuts Thousands of Wall Street Cops While Markets Swing

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