Call off the DOGE — indiscriminate axing of regulators is bad policy

Frank Gargano

The Trump administration is searching for savings wherever possible, and the long arm of the "Department of Government Efficiency," or DOGE, is reaching into government agencies to do so. While I can understand some of the president's motivations, I urge policymakers to put away the chainsaw and take a slower, steadier approach. Without it, the United States' diverse banking ecosystem, particularly smaller banks, could suffer.

We were all prepared for this government to cut costs. Ever since Elon Musk made his way into the president's inner circle, it's been clear that robust money-saving measures were coming down the tracks.

To a certain extent, I understand why. The U.S. budget deficit has been climbing, and it makes sense that the president wants to keep spending under control.

There will undoubtedly be areas of government, federal agencies included, where the administration can make processes more efficient. However, while I agree that we should curtail high spending, gutting federal regulators is no way to go about it.

In my view, this all-guns-blazing approach to cutting costs is already damaging crucial financial regulators. Without a more sophisticated, nuanced cost-saving framework in place, the government is bound to make errors that scar financial services for years to come.

The Consumer Financial Protection Bureau is a case in point. The administration is systematically hollowing out the regulator, axing staff, dethroning leadership figures and grinding the agency to a halt.

As a result, millions of dollars' worth of payouts, designed to offer compensation to those on the receiving end of harmful lending practices, are being called into question. Elsewhere, and perhaps even more worryingly, court cases against banking giants are vanishing. These are concerning trends that must not be allowed to take hold.

We're seeing policymakers undermining federal regulators here, and it's not just the CFPB. The futures of the SEC, FDIC and OCC are all fairly uncertain, leaving question marks over how essential laws will be enforced and how powerful financial institutions will be held to account.

What is unfolding will hurt the entire banking sector, and particularly regional and community banks. These smaller institutions form the bedrock of many communities nationwide, and consumer trust is a fundamental component of their success. With every hasty cost-cutting move, the government is jeopardizing this trust.

Broadly speaking, attitudes toward banks have been healthy over recent years — eight out of 10 consumers felt their deposits were safe and had faith in their bank in 2024. But, unless Musk & Co. put down their sledgehammers, this level of consumer confidence could tank.

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The presence and strength of the CFPB, FDIC and others undoubtedly send a signal to customers. At the end of the day, they know that there is a safety net in place, but if the administration continues to bulldoze through their reassuring presence and reach, consumers could quickly shift their banking behaviors.

Americans could increasingly turn to the big four, spelling trouble for smaller banks.

The likes of JPMorgan, Citi, Bank of America and Wells Fargo have vast amounts of reserve capital compared to their smaller counterparts, and are so dominant that many believe they are too big to fail.

My concern is that with regulators weakened, consumers will turn away from small institutions and seek safety in numbers. This would be a sharp blow for many regional and community banks already tackling threats of customer churn. If worse comes to worst, it could threaten their very existence.

Let me be clear: I'm not calling for tighter regulation here. I'm not even calling for an extension of the status quo. There's no denying that the wider banking sector, including regional and community banks, could benefit from looser regulation.

Capital reserve requirements and M&A are two clear examples. Firstly, there's no doubt that incoming Basel III capital requirements could be scaled back — if they aren't, policymakers could risk squeezing banks of all sizes. Secondly, banks must be allowed to scale through consolidation. Regional banks are gearing up for a period of dealmaking, and I firmly believe that lawmakers should lower regulatory hurdles to incentivize growth and activity within the sector.

I'm not saying we should rest on our laurels. Government agencies and regulators are inefficient in places, and they could loosen their grip to drive progress and innovation. But they shouldn't be wiped out entirely.

This administration is undermining some of the country's most vital agencies. If left to their own devices, DOGE's approach to cost-cutting could create serious regulatory gaps that threaten smaller institutions.

Regional and community banks are already battling to stay on top of customer churn and go toe-to-toe with their larger competitors. If Trump and Musk continue to erode consumer confidence, they'll simply hand the victory to industry titans and stifle competition across the entire banking sector. A change of approach is sorely needed.