February 2, 2026
The abrupt closure of Chicago’s Metropolitan Capital Bank & Trust on January 30 sent minor tremors through the financial system. No depositors lost money, thanks to the Federal Deposit Insurance Corporation (FDIC). However, this small bank’s failure is casting a harsh, revealing light on the Trump administration’s aggressive deregulation of Wall Street and its conscious dismantling of the agencies meant to prevent such crises.
The official cause of Metropolitan Capital’s $260 million collapse remains undisclosed. Yet, the failure arrives amid a perfect storm of policy choices: a relentless push to slash banking rules, deep staffing cuts at key regulatory agencies, and warnings from experts that these actions are “sowing the seeds for the next financial crisis”.
The Weakening of the Watchdogs
At the heart of this storm is the FDIC itself. Even before Metropolitan Capital’s collapse, the agency warned it was struggling with staffing shortages that hampered its ability to supervise banks and reduce failure risk. Instead of reinforcement, the Trump administration has subjected the agency to significant cuts.
· Staffing Crisis: The administration has fired hundreds of FDIC employees and rescinded over 200 job offers for new bank examiners—the frontline workers who identify problems at institutions. These cuts exceed 10% of the agency’s workforce.
· Eroded Independence: President Trump has signed executive orders increasing White House control over “independent” agencies like the FDIC. Furthermore, administration officials have reportedly discussed abolishing the FDIC altogether.
· Regulatory Retreat: The new acting head of the FDIC, Travis Hill, has stated his intent to conduct a “wholesale review of regulations” and withdraw “problematic proposals” from the previous administration.
These moves align with a broader agenda to shrink the federal bureaucracy, but experts note the FDIC is funded by banks, not taxpayers, meaning the cuts save no public money while increasing systemic risk.
A Playbook of Deregulation
The pressure on the FDIC is one facet of a comprehensive deregulatory drive. The administration’s policy, influenced by conservative blueprints like Project 2025, seeks to restructure what it calls an “outdated and cumbersome financial regulatory system”.
Key Regulatory Shifts Under the Trump Administration:
· Capital Rules: The critical “Basel Endgame” rules, designed to increase capital cushions at the largest banks, are now in doubt and could be “completely dead”.
· Supervisory Focus: Leadership at key agencies is shifting toward officials critical of strict oversight, with a new emphasis on easing rules for fintech and cryptocurrency ventures.
· Enforcement Philosophy: The administration has been “walking away from pending and even settled enforcement actions” against banks, according to the watchdog group Better Markets.
This represents a continuation of policies from Trump’s first term. The 2018 rollback of the Dodd-Frank Act, which raised the asset threshold for stricter oversight from $50 billion to $250 billion, was cited by experts as a contributor to the 2023 collapses of Silicon Valley Bank and Signature Bank. Those banks failed due to classic red flags—concentrated deposits and interest rate risk—that critics argue stricter supervision might have caught earlier.
The Looming Specter of a Larger Crisis
While Metropolitan Capital was a small institution, analysts warn the administration’s policies are amplifying vulnerabilities that could lead to a far broader fiscal or financial crisis.
The U.S. national debt stands at 100% of GDP, with high deficits putting upward pressure on inflation and interest rates. In this fragile environment, weakened bank supervision and reduced capital requirements create a dangerous synergy. A sharp rise in interest rates—a distinct risk with high debt—could rapidly devalue bank assets, triggering a cascade of failures exactly when regulators have fewer tools and less personnel to respond.
As the non-partisan Committee for a Responsible Federal Budget (CRFB) warns, “The higher and faster growing the U.S. debt burden, the more likely and more consequential such a crisis would be”.
A System Under Stress
The orderly resolution of Metropolitan Capital Bank is a testament to the FDIC’s core function working as designed. However, it also serves as a stark indicator of a system under increasing stress. Each cut to the examiner corps, each rolled-back rule, and each abandoned enforcement action increases the probability that the next failure will be larger, come without clear warning, and test the limits of a deliberately weakened regulatory framework.
The administration frames its actions as liberating business from bureaucratic red tape. But to a growing chorus of experts, former regulators, and lawmakers, the Metropolitan Capital failure is a small but clear signal that the financial system’s safety margins are being eroded, with potentially grave consequences for the broader economy.
I hope this article provides a clear investigation into the connections between this bank failure and current regulatory policies. To better understand this topic, are you interested in a deeper analysis of the specific 2018 deregulation law or the current proposals for restructuring agencies like the FDIC?