What Happens if the Trump Administration Abolishes the FDIC?

A recent proposal by advisors to President Trump has many Americans wondering if their money held in the bank is safe. According to Reuters, the Wall Street Journal, and other news outlets, the Trump transition team is considering plans to abolish the FDIC.

The Federal Deposit Insurance Corporation (FDIC) is a bank regulator for the U.S. government. It was created in 1933 amid the Great Depression as a way to protect bank deposits and restore trust in the system. Today, the FDIC insures deposits up to $250,000 for accounts at member banks.

Image: Wikipedia

The president-elect and his team have been exploring the idea of curtailing or outright eliminating the FDIC. It is part of their broader effort to reduce the size and scope of government expenditures. This agenda is being led by the advisory body called the Department of Government Efficiency (DOGE).

Cutting government waste is certainly a noble cause, and it has been a central idea for Trump's presidential campaign. This is the first indication, however, that the incoming administration may seek significant changes to banking regulation.

Potential Positive Effects of Eliminating the FDIC

At least since the financial crisis of 2008, banks are rarely (if ever) held accountable. You can even go back to the savings & loan crisis of the late 1980s to early 1990s and the same holds true: basically nobody involved ever went to jail. Part of the reason why is that deposit insurance encourages reckless behavior by banking leadership.

Removing the FDIC could change that. The idea has been floated to issue lifetime bans from engaging in any financial activity for executives whose bank fails. At minimum this could deter bank executives from taking on too much risk and may lessen some of the moral hazard of modern banking.

Moreover, $250,000 insured per account typically isn't enough, requiring the government to bail out the bank anyway. Banks pay a fee into the FDIC fund, but they can simply pass this cost along to the consumer through more fees or higher fees. Essentially it is a tax on American consumers. Abolishing or at least restructuring the FDIC might erase this hidden tax.

Potential Negative Effects of Eliminating the FDIC

As usual, it's the "little guy" who could be hurt the most by this policy change. The federal government is going to focus on rescuing the biggest banks first in the event of a crisis. Smaller community banks would be the first ones allowed to fail. So if you don't hold your money in a large institutional bank like JPMorgan or Bank of America, you're out of luck.

Also consider that for most Americans, their home is their largest asset. Imagine you sell your home and the funds are wired to your bank account—but then the bank fails. All of that money is suddenly lost, irrevocably so.

In the absence of deposit insurance, Americans will likely be less inclined to keep large amounts of cash in a bank account. If and when a major banking institution faces financial difficulties, your funds could be frozen or confiscated in what is called a "bank bail-in" (as opposed to a bail-out).

Why Gold and Silver Bullion Help Protect Your Money

By converting a portion of their cash to safer assets such as gold, people can avoid the counterparty risk of an unsecured banking account. In this scenario, diversifying your wealth with precious metals is very prudent decision.

Gold and silver allow you to safely store your wealth without worrying about bank failures or changes to banking regulation. While most investors buy gold as a hedge against inflation or currency devaluation, many others choose to own gold and silver as a hedge against turmoil in the banking sector generally. A growing lack of trust in banks and fear of bank bailouts tends to drive precious metals prices higher, which is why these metals are an effective hedge against potential bank defaults.

If you're interested in buying silver and gold, follow the links to shop for precious metal bullion at Gainesville Coins.

Ultimately the proposal to restructure FDIC may not receive enough support from congressional Republicans. Keep in mind that DOGE is only a presidential commission, and does not have the binding power of a government agency; it still requires Congress to enact its proposals.