Trump’s careless experiment with financial deregulation

Srichand Myneni

2nd March 2025

Written by Srichand Myneni

Two years ago, the US banking sector was proven to be extremely vulnerable. This was demonstrated by the collapse of Silicon Valley Bank (SVB), which nearly sparked a financial crisis. The banks’ downfall was triggered by its bond portfolio crumbling with its decrease in value totalling $21 billion. This was triggered by sudden interest rate hikes up to 5% and the mass withdrawal of deposits from its tech-focused customers.

Thankfully, quick regulatory action prevented a major crisis, but the episode highlighted the obvious risks posed by light regulation for smaller banks, a set of policies set under former President Trump’s administration.

With president Joe Biden having introduced banking regulations which directly oppose those of Trump, it is likely that his second term will see large deregulation and the removal of these policies. This deregulatory push is especially prominent among smaller banks.

Furthermore, key financial regulators are being replaced with individuals who favourlighter banking regulation, such as Paul Atkins at the Securities and Exchange Commission (SEC) and Travis Hill at the Federal Deposit Insurance Corporation (FDIC).

This change in personnel is particularly concerning with Trump’s avid interest in cryptocurrency. He has created the foundations for a possible strategic reserve of tokens with little backing. He has also endorsed his son’s crypto projects and even started his own “memecoin.”

The recently proposed changes to accounting guidelines would simplify the process for banks and asset managers to hold crypto tokens, bringing this highly volatile asset closer to the core of the financial system. This move can only increase the vulnerability of the already scarred US banking system.

As the US banking system moves toward deregulation, other major financial centres may follow suit. The EU and UK have already softened their stance on strict capital requirements for banks under Basel III, inspired by the US. However, with the US planning to significantly reduce financial regulations, there's a risk that this could trigger a broader decline in global regulatory standards.

Ken Wilcox, former CEO of SVB from 2001 to 2011, called the deregulation push “a huge mistake and will be dangerous,” adding that “without strong banking regulators, banks will run amok,” in an interview with The Banker. While Trump may avoid short-term consequences from his deregulated approach to banking (since financial system problems often take years to surface) careless regulatory cuts by the new administration could have widespread negative effects soon.