The layoffs of federal workers in the US due to the government shutdown could lead to significant gaps in banking regulation, warns Adam Turmakhan, CEO of Florida-based TurmaFinTech. He asserts that further cuts to already diminished regulatory bodies may pave the way for more banking failures, similar to the collapse of Silicon Valley Bank (SVB) in March 2023.
As political tensions between Republicans and Democrats escalate, the potential for additional layoffs among banking regulators and watchdogs looms large. Turmakhan describes this situation as potentially “catastrophic” for regional and community banks. If these institutions overreach their risk limits, the chance of a bank collapse increases, which could create a domino effect, as seen in 2023 when SVB’s failure triggered the downfall of Signature Bank and First Republic Bank.
Turmakhan emphasizes the need for a change in direction: “Trump’s proposed layoffs could have dire consequences for the US banking sector. Reducing the capacity of key regulators will only increase risk in the banking landscape, putting vulnerable regional and community banks at greater risk.”
He added, “Regulators play a crucial role in preventing insolvency, and any reduction in their power only makes the system more fragile. After witnessing the consequences of bank runs, it’s clear that a weakened regulatory framework could lead to uncontrollable crises.”
Earlier this year, a Finextra survey found that US fintech executives were already uneasy about the implications of deregulation under Trump, particularly regarding technology development and oversight weaknesses.