Trump’s deregulation agenda threatens global financial stability

Thorsten Beck is director of the Florence School of Banking and Finance and a professor of financial stability at the European University Institute (EUI). Vasso Ioannidou is a financial economist at Bayes Business School at City St George’s, University of London.

During his first term in the White House, U.S. President Donald Trump rolled back key safeguards on regional banks. The result? A wave of high-profile failures in 2023 — most notably Silicon Valley Bank.

Now, in his second term, Trump is going even further, not only gutting regulations but moving to place independent financial watchdogs under direct White House control.

The repercussions here will be wide-reaching, as the global financial system is tightly interconnected. When Washington weakens its financial guardrails, others feel pressured to follow suit to stay “competitive.” This sets off a “race to the bottom,” which then risks unleashing the kind of instability last seen in 2008.

But today’s world is far more fragile — marked by geopolitical conflict, brittle supply chains, sluggish growth and governments burdened by record levels of debt.

So, this time, the fallout could be far worse.

Regulatory independence matters a great deal. Independent financial regulators, like the U.S. Securities and Exchange Commission or the Federal Reserve, exist to insulate long-term oversight from short-term political interests. They don’t serve presidents or prime ministers — they serve the public.

But Trump wants to rewrite this balance.

Under recent executive orders, financial watchdogs in the U.S. are now required to submit their strategic plans to the White House. And over time, Trump will likely go further, reshaping these agencies to serve political objectives.

This isn’t just about domestic policy. Trump and his allies have signaled interest in using the financial system as a tool of geopolitical leverage, politicizing access to capital, sanctions enforcement and financial flows in order to pressure allies and adversaries alike.

If the U.S. goes down this road, its financial system won’t just become more volatile — it will become a political weapon, adding financial instability to an already dangerous global landscape.

When American banks face looser rules, for example, their global competitors often demand the same. | Davis Turner/Getty Images

U.S. deregulation doesn’t just stay in the U.S. — its effects ripple across the world. When American banks face looser rules, for example, their global competitors often demand the same. That pressure is already visible, with the U.K. floating “Brexit dividends” tied to lighter regulation, and EU officials pushing for “simplification” in financial oversight.

We’ve seen this before: In 2023, delays in the U.S. implementation of the “Basel 3” global banking standards forced Europe and the U.K. to postpone their own rollouts. And if Trump takes a wrecking ball to oversight again, others may feel forced to follow, unwilling to leave their banks at a disadvantage.

The outcome? A weakened global financial system, more vulnerable to bubbles, crises and costly government bailouts.

But the threat goes beyond financial regulation, as Trump and his allies have now openly questioned the independence of the Federal Reserve.

Central banks must serve the long-term health of the economy, not the short-term needs of politicians seeking reelection. But the legal challenges now before the Supreme Court could go so far as to give the White House power to fire the central bank’s board members.

This isn’t just a legal technicality. If the Fed loses its independence, the U.S. could face higher inflation, currency instability and more frequent crises — outcomes familiar to countries where central banks have been politicized. And again, the effects will be felt far beyond U.S. borders.

So, as Trump threatens to dismantle key financial safeguards, Europe cannot afford to stand still. The EU must not only hold the line, but also fill the leadership vacuum the U.S. may leave behind.

European governments and regulators need to maintain strong, independent oversight. But holding firm doesn’t mean clinging to outdated rules. The bloc can lead by simplifying unnecessary red tape while offering a stable, predictable environment rooted in the rule of law.

In an uncertain world, global investors look for clarity, accountability and resilience. In an era of rising uncertainty, Europe has a chance to position itself as a safe haven — both economically and politically.

This is a choice between stability and crisis. Trump’s second-term agenda may be pitched as economic “freedom,” but its effects could be anything but liberating. And a world where financial oversight is politicized and regulations are gutted is a world primed for crisis.

Financial markets thrive on trust and predictability. Undermining the institutions that provide both is a recipe for global instability.

The rest of the world must not wait to react. The time to prepare is now.