In a new report published on 27 February, NPR shared a warning that the US Federal Deposit Insurance Corporation (FDIC)’s proposed dismantling at the
behest of the Trump administration could be particularly perilous for the US banking system and its customers.
NPR noted the rapid job-cutting actions and attacks from the White House and its allies against the nation’s chief depositor-protection agency have raised major concerns among industry experts on both sides of the political aisle. The targeting of FDIC and
other federal financial regulatory bodies for cost reductions and supposed overreach has been led by Elon Musk’s
DOGE - as prescribed by the Trump team’s guiding ‘playbook’ - the
Heritage Foundation-produced, Project 2025 ‘blueprint for change.’
The recent forced staff reductions and freeze on new hires at the FDIC shocked many – as the agency was by most accounts already facing urgent needs to bulk up its staffing and resources given the projected retirement eligibility of more than 38% of its
seasoned managers by 2027. With these job cuts by DOGE under President Trump’s blessing, the agency has now seen more than a 10% immediate reduction in staff of about 6,000. It was also forced to rescind employment offers to more than 200 new examiners hired
to help cushion the blow of the rapid attrition among its teams. Finally, plans for an additional 600 new staff positions – intended by the agency to rebuild its ranks and modernise its approach and procedures - were also scrapped.
FDIC is not government-funded, banks pay for deposit insurance, so why is it being targeted?
NPR’s report reiterated an interesting and oft-forgotten fact - missed by so many covering this issue or even commenting on it. It’s a point we’ve raised in
past articles here on Finextra as well.
That truth is that funding for the FDIC – an independent agency created in 1933 in response to a recurrent train of periodic financial panics and numerous Great Depression-era bank runs - comes
wholly from those it insures: the banks and savings institutions within the United States which display the “FDIC Insured” logo on their doors.
Questions are thus being asked across financial services on why an extra-governmental, non-elected group, DOGE - led by Elon Musk and a cadre of ‘cost-cutters’ tasked to expose “fraud, waste, and abuse” within federal government agencies – is targeting the
FDIC? Given that it does not spend federal money to do its job? Answers are not yet clear, especially given the agency’s long and successful track record protecting American depositors.
The FDIC insures consumer and business deposits at more than 4,400 US financial institutions up to “$250,000 per depositor, per insured bank, for each ownership category.” All this insurance coverage and any payouts required – backed by more than $137 billion
in the agency’s associated Deposit Insurance Fund - is provided not by taxpayers but through a time-tested self-insurance arrangement based on quarterly assessments and premiums paid solely by its bank members.
FDIC has over 90 years of experience handling bank failures
The FDIC’s insurance framework has worked remarkably well and the agency notes it has “not lost a penny” for any insured depositor in its more than nine decades of operation.
That period has included numerous financial panics, crises, and bank failures, including
2023’s runs on several regional commercial banks – most notably Silicon Valley Bank and First Republic Bank – and the
crash of 2008-09 that preceded the Great Recession and led to the passing of landmark Dodd-Frank banking regulations by Congress. Before that came the FDIC’s role in helping the nation navigate the
savings & loan and related bank crises of the 1980’s and early 1990’s.
In the period between 2001-2025 alone, the FDIC has dealt with 569
bank failures representing nearly $1.3 trillion in combined assets. Additionally, the agency monitors ongoing bank and savings institution
compliance with consumer protection laws including the “Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth in Lending Act, and the Fair Debt Collection Practices Act, and the Community Reinvestment
Act, which requires banks to help meet the credit needs of the communities they were chartered to serve.”
“Fork in the road” staff cuts raise questions of FDIC’s future, administration’s intent
The Trump administration and DOGE have fired 170 ‘probationary’ employees at FDIC whose jobs, like those in other federal agencies, are typically not protected for an initial tenure of one year and thus easier to terminate. They have also encouraged 500
other FDIC workers – representing
about 8% of all staff - to take ‘deferred resignations’ to leave immediately yet receive pay through later this summer.
This so-called ‘fork in the road’ resignation pressure repeats an approach and language used by Musk when he purchased and subsequently terminated 6,000 employees, approximately 80% of the staff, at Twitter (now X). The acquired company’s advertising revenue
then
declined by more than 45% in his first full year running it. X saw 2024 ad revenue reach less than half the level it was pre-Musk and client spending on the platform has continued to fall into 2025. Musk has, however, announced plans to create a financial
payments ‘super-app’ there using the
X Money name – whose activities, if they ventured beyond facilitating payments into deposit-gathering, would likely come under the oversight of the FDIC.
The regulator’s specific focus depends on the degree it remains independent in its operations. Though a new head of the FDIC was named by the Trump team on 25 January, it’s not clear just what role
Travis Hill, formerly Vice Chairman of the agency and previously senior counsel at the Senate Committee on Banking, Housing, and Urban Affairs, will ultimately play in any overhaul or consolidation of the agency’s duties.
Meanwhile, at the Consumer Financial Protection Bureau (CFPB), former FDIC board member
Jonathan McKernan - named by Trump in late February to replace initial acting directors Scott Bessent (Treasury Secretary) and then Director Russell Vought (Office of Management and Budget director and a key architect of the Project 2025 recommendations)
- is slated to face Senate confirmation for the agency’s sole director post soon.
How all these leadership changes will ultimately impact the financial industry is anything but certain as speculation over the past couple of weeks surrounds purported Trump/Musk plans to fold the FDIC, CFPB, and other federal financial watchdog agencies
under a single regulatory umbrella. This new super-agency would – if the pundits are correct - be topped by the Office of the Comptroller of the Currency (OCC), with its policies, authority, and actions potentially answerable to the president and attorney
general alone.
DOGE, Trump FDIC job cuts raise bipartisan, systemic concerns within financial community
What makes the DOGE and Trump Administration’s FDIC employee firings, freezes, and ‘forced retirement’ actions worrisome for financial regulatory and operational experts on all sides of the political spectrum is that the FDIC was already viewed by many as
being too leanly staffed.
While the FDIC’s past effectiveness has suffered from
“toxic” workplace issues and what some have called “antiquated” systems and practices, cutting staff of the depositor-protection agency that doesn’t cost taxpayers a dime means more chances to miss or mistake signals on soundness and institutional safety
– which in turn could compromise stability of the entire banking industry. That’s because among the agency’s cuts are qualified bank examiners and other professionals essential to the FDIC’s ability to fulfil its ongoing mission.
Most knowledgeable observers agree that the agency’s mandate - to ensure deposit safety and security in an ever-more-complex and rapidly expanding US financial services marketplace – has become more difficult in recent years.
To sum up worries the recent actions against FDIC and fellow agencies have raised among experts, NPR shared this viewpoint of one financial risk consultant, Mayra Rodriguez Valladares, who works with both banks and regulators: "This administration is really
sowing the seeds for the next financial crisis," said Rodriguez Valladares, noting further that she’s very concerned about the way Trump and Musk have targeted the FDIC, as they have other federal agencies, with little apparent reasons disclosed nor explanations
provided on what functions they have determined staffers are no longer needed to perform. “The cuts [at the FDIC] are incredibly unfortunate,” […] and they are potentially quite dangerous for America's financial stability — which, of course, means for all
of us as ordinary American consumers."
The White House responded to the NPR story through a deputy press secretary, who stated, “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."
Meanwhile, Senator Elizabeth Warren, D-Massachusetts, ranking member on the Senate Banking Committee, and also a key advocate for the
Trump and Musk-targeted CFPB,
said of the quick decision by the FDIC’s Acting Chairman Hill to rescind the new bank examiner job offers: “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.”