Watchdog warns DOGE cuts threaten financial system
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A government watchdog has a new warning about DOGE personnel cuts at a key regulatory agency: Fewer workers could jeopardize bank oversight.
Why it matters: It's an example of how DOGE cost-cutting could have consequences beyond the targeted agency. In this case, the effects could ripple across the financial system.
What they're saying: The inspector general for the Federal Deposit Insurance Corporation — one of the nation's main bank regulators and the body that insures depositors' funds — said a smaller agency will have to contend with the same duties of a larger one: examining the health of 4,500 banks under its purview.
- "With fewer examiners but the same responsibility to conduct statutorily required exams in 2025, it may be difficult for the FDIC to complete these examinations by the end of the year," the inspector general said in a new report.
- "Safety and soundness examinations are especially important given potential risks in the banking sector," the report notes — calling out banks sitting on huge unrealized losses, which sparked the 2023 banking crisis (that, and a concentration of uninsured deposits).
- The report cites an FDIC manual that says its examinations are key to "ensure public confidence in the banking system."
- In December, the inspector general warned about insufficient staffing for the FDIC to adequately carry out another of its key duties: taking over a failed bank's operations and assets.
By the numbers: The FDIC reduced staffing by 9% to less than 5,950 workers since January.
- Additionally, about 450 employees — or 7% of all FDIC employees — accepted the administration's "deferred resignation" offer.
- About 160 probationary workers were dismissed, while roughly 103 employees left for reasons unrelated to DOGE.
The inspector general says that as of February, nearly 17% of remaining staff are eligible for retirement this year.
- It takes three years of training for new commissioners to be qualified to lead bank examinations.
Flashback: Elon Musk's DOGE is not creating a new problem for the FDIC. Instead, the cuts add to a longtime staffing issue.
- By the agency's own admission, more bank examiners might have helped identify the weaknesses at Signature Bank that led to its failure in March 2023.
- "The FDIC experienced resource challenges with examination staff that affected the timeliness and quality of [Signature Bank] examinations," the agency's then-chief risk officer Marshall Gentry wrote in a post-mortem report in 2023.
- From 2017 to 2023, the FDIC did not "adequately staff" an examination team dedicated to Signature Bank, while reviews related to the bank's health were "not completed timely or at all because of resource shortages."
The other side: The FDIC did not respond to a request for comment.
The bottom line: The staff cuts are the near-term problem for the FDIC.
- The agency's fate is in flux, with recent reports suggesting the Trump administration might collapse the agency into other bank regulators.
