Trump's floated idea to shutter FDIC would be political heavy lift, say analysts

(Reuters) -U.S. bank stocks were unfazed on Friday after a report that President-elect Donald Trump's team had floated the idea of shrinking or eliminating a top banking regulator, with analysts saying such a plan would not win the necessary political backing.

In recent interviews with bank regulator candidates, Trump advisers have asked whether the incoming president could abolish the Federal Deposit Insurance Corp (FDIC) and move its deposit insurance function into the Treasury Department, the Wall Street Journal reported on Thursday, citing people familiar with the matter.

Officials from the newly founded Department of Government Efficiency (DOGE), which has been tasked with finding major government savings, participated in the interviews, the WSJ said.

However, while the current system comprising three federal and multiple state bank regulators is complex, a major restructure would struggle to garner the political support needed to get through Congress, which is also expected to be tied up on tax reform and crypto legislation next year, analysts and academics said.

"It would require congressional action and despite the Republican party majority in both the Senate and the House, it would require support from the Democrats which remains very unlikely," ING sector strategist Marine Leleux wrote in a note.

Bank stocks were little changed on Friday.

The Trump transition team has been interviewing candidates for financial agency roles, including the bank regulators, in recent days, said two people with direct knowledge of the matter. DOGE officials have been involved in some of those interviews, one said.

But at least one candidate for a top regulatory post was not asked about overhauling or streamlining the agencies, suggesting the idea is still in its early stages, said the second source.

Spokespeople for the transition team did not immediately provide comment, while an FDIC spokesperson declined to comment.

Trump has pledged to slash burdensome rules but has said little about bank regulation. Last year, the pro-Trump Heritage Foundation's Project 2025 manifesto called for "more streamlined" bank supervision through the merger of the FDIC with other bank regulators. During his campaign, Trump disavowed the project but has since announced plans to appoint key contributors to prominent roles in government.

"Even if you could get it through Congress...it would be an exceedingly heavy lift and have lots of unintended consequences," said Julie Hill, dean of the University of Wyoming College of Law, noting the FDIC had the experience and expertise necessary to oversee banks and safeguard the deposit insurance fund.

The FDIC plays a key role in the financial stability of the world's largest economy with its deposit insurance fund backstopping trillions in insured bank deposits. The importance of the FDIC in shoring up financial stability was once again highlighted last year when three regional banks failed.

"It is the only regulatory entity whose professionals have the expertise and ability to do bank resolutions," said Mayra Rodriguez Valladares, bank and capital markets risk consultant at MRV Associates.

Still, top U.S. banking executives expect Trump's incoming administration will overhaul bank regulatory policy, including by easing up on mergers, and shelving onerous bank capital rules, while some academics said streamlining the system was long overdue.

"There has been a massive duplication of function and massive waste, and this is an incredible opportunity to consolidate," said Rebel Cole, professor of finance, Florida Atlantic University.

(Reporting by Arasu Kannagi Basil and Jaiveer Shekhawat in Bengaluru, Lananh Nguyen in New York, and Matt Tracy, Pete Schroeder and Douglas Gillison in Washington; Writing by Michelle Price; Editing by Noor Zainab Hussain, Anil D'Silva and Rosalba O'Brien)