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Investing.com -- Federal layoffs might spark a new regional banking crisis by creating regulatory blind spots in the U.S. banking sector, according to Adam Turmakhan, CEO of TurmaFinTech.
Turmakhan’s warning comes after President Trump threatened mass federal layoffs amid the ongoing U.S. government shutdown.
The fintech executive believes that staff reductions at key regulatory agencies would limit oversight capabilities, potentially allowing regional and community banks to exceed their risk capacity without proper supervision.
"Trump’s promised layoffs could be catastrophic for the U.S. 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," Turmakhan said.
The Trump administration has already reduced regulatory requirements for banks by cutting capital requirements and easing disclosure rules for troubled loans. Turmakhan argues that additional federal layoffs would further restrict regulators’ ability to provide guidance and oversight to financial institutions.
Turmakhan pointed to the 2023 banking crisis, when the failure of Silicon Valley Bank triggered a "domino effect" that led to the collapse of Signature Bank and First Republic Bank. He warned that federal layoffs at regulatory agencies could precipitate a similar or even more severe crisis.
The TurmaFinTech CEO called for a reversal of the planned layoffs to prevent potential banking sector instability.
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