President Trump's sweeping cuts to the U.S. government are hitting a crucial part of the financial system: the independent agency responsible for preventing future banking crises.
The Federal Deposit Insurance Corp. (FDIC) is responsible for insuring consumer deposits against bank failures — and for preventing those failures in the first place.
Since its creation 92 years ago, during a national panic that closed thousands of banks, the FDIC has performed some of the unglamorous but crucial work of ensuring financial stability. Its very existence reassures consumers and businesses that their money is safe, by insuring deposits of up to $250,000.
And its employees closely monitor most of the United States' smaller banks — warning lenders if, for example, their debt levels are edging too high or if they're taking on too much risky business.
The end goal of these examinations is to catch any problems before they snowball into a bank failure — or a wider banking crisis. In those worst-case scenarios, the FDIC is also responsible for taking over failed banks.
But the agency has been struggling with several internal problems, including staffing shortages and widespread employee complaints about a toxic culture. The FDIC says that its staffing problems have already made it harder to adequately supervise banks and reduce the risk of bank failures.
Now, those problems are getting much worse. Trump and his billionaire adviser, Elon Musk, are firing workers across agencies as they slash the size of the federal government — and hundreds of FDIC employees have already been affected.
About 170 probationary employees of the FDIC were fired this month after about 500 workers had already accepted the Trump administration's deferred resignation offer, Bloomberg reported this month. The reported cuts amount to more than 10% of the agency's workforce.
The FDIC has also rescinded more than 200 job offers to new examiners, the front-line employees who monitor banks for early signs of problems, The Washington Post reported in January.
A spokesperson for the FDIC confirmed that about 500 employees had accepted the deferred resignation offer, but otherwise declined to comment.
Alarm bells are ringing
The FDIC's role as the backstop of the banking system made headlines during the 2008 financial crash and the 2023 regional banking crisis. During that more recent scare, the agency took extra steps to restore public confidence in the financial system by promising to insure every affected bank account — even those above its $250,000 limit.
But the Trump administration's new cuts further weaken a banking watchdog that has been sounding the alarm for years about its decreasing ability to prevent future banking crises.
After New York-based Signature Bank collapsed during the 2023 crisis, the FDIC said it didn't have enough qualified examiners to catch the problems that had led to the bank's failure.
Yet instead of gaining more resources, the FDIC is losing them. It's hardly alone among financial regulators: The FDIC's cuts have paled in comparison with the administration's efforts to essentially shut down the Consumer Financial Protection Bureau, which is widely hated by Republicans and many in the financial industry.
Now, regulatory experts are warning about the potential long-term consequences of further weakening the FDIC.
"This administration is really sowing the seeds for the next financial crisis," says Mayra Rodríguez Valladares, a financial risk consultant who works with banks and regulators.
"The cuts [at the FDIC] are incredibly unfortunate," she adds. "And they are potentially quite dangerous for America's financial stability — which, of course, means for all of us as ordinary American consumers."
The FDIC has faced wider problems
Trump and Musk say they want to reduce government spending. But their cuts to the FDIC won't save taxpayers any money — because the FDIC doesn't cost taxpayers anything in the first place. Instead, it's funded by banks, which pay the FDIC quarterly dues based in part on the deposits they hold.
The agency has historically operated independently of the White House. It regulates about 4,500 banks; most of those are smaller institutions, while the Office of the Comptroller of the Currency and the Federal Reserve supervise the larger, systemic banks.
The FDIC said in its annual report issued last year that it has a staff of about 6,000 and that it was seeking to hire an additional 800 people. But it has been struggling to do so, for a variety of reasons: An outside review last year found a toxic workplace where hundreds of employees complained of sexual harassment, discrimination and other misconduct. The investigation was commissioned after a 2023 report by The Wall Street Journal, which documented strip club visits, lewd messages, heavy drinking and bullying at the government agency.
Trump has since replaced the then-chair of the FDIC, Martin Gruenberg, by promoting Vice Chair Travis Hill to head the agency on an acting basis. Hill said in January that he wanted to "conduct a wholesale review of regulations" and "withdraw problematic proposals" of the Biden administration. He has also signaled that he wants to make it easier for nonbank financial interests, including cryptocurrency, to become part of the mainstream financial system.
Weakening the FDIC in general appears to be a goal of Trump and Musk's Department of Government Efficiency. Musk has said on his X social network, "There are too many duplicative regulatory agencies."
Last week, Trump signed an executive order that would give him greater power over independent regulatory agencies, including the FDIC. And some of Trump's advisers have expressed interest in abolishing the FDIC, The Wall Street Journal reported in December.
In an emailed response to NPR, a White House deputy press secretary said, "The personal financial situation of every American is top of mind for the President, which is why he's working to cut regulations, reshore jobs, lower taxes, and make government more efficient."
Influenced by Project 2025
The administration's approach to the FDIC appears similar to the agenda laid out in Project 2025, the conservative policy blueprint that Trump distanced himself from while campaigning but that has appeared to shape many of the actions he has taken as president so far.
That 900-plus-page document proposes restructuring "the outdated and cumbersome financial regulatory system," in part by merging the FDIC and other banking regulators.
Some Democrats are publicly warning about the impact of Trump's cuts to the agency.
"These cuts threaten the reliability and integrity of federal deposit insurance and inhibit the FDIC's capacity to ensure the stability and confidence that underpin our nation's banking system," Sen. Elizabeth Warren, D-Mass., who is the ranking member of the Senate Banking Committee, said in a statement last week.
Rodríguez Valladares, the financial consultant, acknowledges that regulatory bureaucracy can make it more difficult to do business and drive up costs, as bankers have long complained.
But she worries that the approach Trump and Musk have taken to slashing the agencies without much process, and to firing people without first studying what their roles and responsibilities entail, could create long-term chaos for the U.S. economy.
"That is just literally one of the most dangerous, one of the most insane things I've ever seen, and I've been working in markets for over three decades," she says.
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