The Wall Street Journal reports:

The Trump transition team has started to explore pathways to dramatically shrink, consolidate or even eliminate the top bank watchdogs in Washington.

In recent interviews with potential nominees to lead bank regulatory agencies, Trump advisers and officials from his newfound Department of Government Efficiency have, for example, asked whether the president-elect could abolish the Federal Deposit Insurance Corp., people familiar with the matter said.

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.

Any proposal to eliminate the FDIC or any agency would require congressional action. 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.

Bank executives are optimistic President-elect Donald Trump will ease a host of regulations on capital cushions and consumer protections, as well as scrutiny of consolidation in the industry. But 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.

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. [Continue reading…]