Federal layoffs could spur the next regional banking crisis, warns fintech CEO
Imminent federal layoffs could spur the US’s next regional banking crisis, curtailing watchdogs’ capacity and allowing regulatory blind spots to creep in, warns Adam Turmakhan, CEO of TurmaFinTech.
Turmakhan’s intervention follows President Trump’s threat to initiate mass federal layoffs, potentially in their thousands, amid the ongoing US Government shutdown.
With layoffs at key regulators appearing increasingly likely, Turmakhan warns that dangerous blind spots could soon creep into the US banking sector. Without sufficient oversight, for him, regional and community banks could inadvertently overextend their risk capacity, potentially ushering in the next banking crisis.
The Trump administration has already loosened regulatory guardrails around US banks, slashing capital requirements and softening disclosure rules for troubled loans. For Turmakhan, federal layoffs would only further limit the foresight and assistance watchdogs can offer institutions, putting them at greater risk of collapse.
The fintech founder warns that a single bank failure can quickly spark a “domino effect” – as seen in 2023 with the collapse of Silicon Valley Bank, Signature Bank, and then First Republic Bank. For him, federal layoffs at critical watchdogs could bring about another crisis of a similar, if not greater, magnitude, and a U-turn is needed.
Adam added: “Trump’s promised layoffs could be catastrophic for the US banking sector. Slashing capacity at key regulators will only leave more room for risk across the banking landscape, putting regional and community banks, which are more vulnerable to market volatility, at risk of collapse.
“Regulators are critical for protecting banks from insolvency, and this promise is just yet another move to defang their power. They’ve already felt the full force of DOGE, and new federal layoffs could render them completely limp, preventing them from setting guardrails that stop banks from inadvertently overextending their risk capacity.
“We learned in 2023 that bank runs are contagious – the domino effect is hard to stop at the best of times, let alone when regulators’ capacity has been significantly diminished. Unless there’s an urgent U-turn, we’re at risk of sleepwalking into another regional banking crisis.”