President-elect Donald Trump's advisers, alongside tech billionaire Elon Musk's Department of Government Efficiency task force, are soliciting opinions from nominees on whether it would be possible for Trump to abolish the Federal Deposit Insurance Corporation, the Wall Street Journal reported Thursday.
For now, at least, the idea appears to be reorganizing its function rather than eliminating it outright. Trump's advisers "have asked the nominees under consideration for the FDIC, as well as the Office of the Comptroller of the Currency, if deposit insurance could then be absorbed into the Treasury Department, some of the people said," reported Gina Heeb.
Regardless, such a proposal "would require congressional action," the report noted, and "while past presidents have reorganized and rebranded departments, Washington has never shut down a major cabinet-level agency and rarely closed other agencies like the FDIC that are not."
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The FDIC, considered one of the most critical banking regulators in the United States, runs deposit insurance, a program that compensates a bank's account holders up to $250,000 if the bank fails and is unable to dispense the money in their account. Created in 1933 at the height of the Great Depression, the program exists to prevent "bank runs," or cascading panics where most or all of a bank's accountholders try to withdraw their money simultaneously. Prior to the creation of the FDIC, bank runs were common during economic crashes.
It is unclear that there is even support within the banking industry for a drastic change to federal deposit insurance, the report noted.
"FDIC deposit insurance is considered near sacred. Any move that threatened to undermine even the perception of deposit insurance could quickly ripple through banks and in a crisis might compound customer fears," said the report. For example, "after several banks failed last year, customers panicked about whether their deposits were safe at smaller banks. Many fled to the biggest of big banks who are perceived to be so important that the government would never let them fail. Since then, banks have been calling for wider deposit insurance protections to keep smaller banks competitive."
This also comes as Musk has pushed for the elimination of the Consumer Financial Protection Bureau, a corporate misconduct watchdog that since its creation in 2011 has returned billions of dollars to consumers.
