Reshaping Financial Regulation: From Crisis Response to Trump’s Second Term

As always, this analysis and report was completely generated by our AI platform ALFReD. Know Better. Work Smarter. Be More Successful. Tim

Key Takeaways

• Financial regulatory agencies have experienced substantial growth since the 2008 crisis, with the CFPB expanding from 700 employees in its first 100 days to 1,758 in fiscal year 2024 1 2
• The Trump administration is implementing significant changes to financial regulatory agencies, aiming to reduce their size and scope, with recent layoffs announced at USDA, VA, HUD, HUD/FHA, and the Federal Housing Agency 3
• Human cost. The human cost of these transitions, with thousands of dedicated public servants facing job uncertainty, cannot be overlooked.
• Key appointments, including Russ Vought, Jonathan McKernan, and Mark Calabria, signal a shift towards a more targeted regulatory approach 4
• The expansion of regulatory agencies has led to increased complexity and costs in compliance, with the average cost to originate a mortgage rising from $4,500 in 2009 to over $8,000 in 2024 5
• State-level actions have further complicated the regulatory landscape, sometimes conflicting with federal initiatives 6

Latest Developments at Housing and Finance Agencies

The Trump administration has recently announced significant layoffs and restructuring efforts across several key housing and financial regulatory agencies:

1. Department of Housing and Urban Development (HUD): Reports indicate that up to 50% of HUD’s workforce of approximately 9,600 employees could be eliminated 7
2. Federal Housing Administration (FHA): The FHA is reportedly preparing to lay off 40% of its workforce 8
3. U.S. Department of Agriculture (USDA): Thousands of USDA employees across multiple agencies have been notified of job losses 9
4. Department of Veterans Affairs (VA): While specific numbers are not available, the VA is also facing workforce reductions as part of the broader initiative
5. Federal Deposit Insurance Corporation (FDIC): The FDIC has seen staff reductions, with Senator Elizabeth Warren expressing concern that these cuts “threaten the stability of the banking system” 10
6. Consumer Financial Protection Bureau (CFPB): Under new leadership, the CFPB has paused most work activities and decided not to draw its next round of funding from the Federal Reserve.  11

Restructuring the CFPB

The Consumer Financial Protection Bureau has been a particular focus of the administration’s regulatory reform efforts. Key changes include:

1. Leadership Changes: The appointment of Russell Vought as acting head of the CFPB signals a significant shift in the agency’s direction 19
2. Operational Pauses: Under new leadership, the CFPB has paused most work activities and decided not to draw its next round of funding from the Federal Reserve 20
3. Symbolic Actions: The removal of signage from the CFPB’s headquarters has been interpreted as a symbolic gesture signaling the administration’s intent to dramatically reduce the agency’s role and visibility 21

These actions reflect a broader philosophy of reducing regulatory burdens and streamlining government operations. The administration has also ordered agencies to lay off nearly all probationary workers who had not yet gained civil service protection, potentially affecting hundreds of thousands of employees across various agencies 12.

Historical Context

The landscape of financial regulation in the United States has undergone significant transformations since the 2008 Global Financial Crisis (GFC). The crisis exposed weaknesses in the regulatory system, leading to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. This legislation created new regulatory bodies like the CFPB and expanded the mandates of existing agencies.

The growth of these agencies was substantial:

• The CFPB grew from 700 employees in its first 100 days to 1,758 by fiscal year 2024
• The FDIC expanded from approximately 5,000 employees in 2008 to over 6,500 by 2024
• The Federal Housing Finance Agency (FHFA) grew from about 350 staff in 2008 to over 700 by 2024
• HUD’s workforce increased from 8,500 in 2008 to over 9,600 by 2024

This expansion was driven by the belief that more comprehensive regulation was necessary to prevent future crises and protect consumers. However, it also led to increased complexity and costs in the financial industry. The average cost to originate a mortgage rose from $4,500 in 2009 to over $8,000 in 2024, reflecting the increased regulatory burden.

The argument for major changes stems from concerns about regulatory overreach, inefficiencies, and the economic impact of compliance costs. Proponents of reform argue that streamlining regulations and reducing agency size could lead to a more efficient financial system and reduce costs for consumers.

However, it’s crucial to recognize the human toll of these changes. Thousands of dedicated public servants have devoted their careers to implementing and enforcing financial regulations, often motivated by a genuine desire to protect consumers and ensure financial stability. The recent layoffs and restructuring efforts have created significant uncertainty and stress for many agency employees. For instance, the potential 50% reduction in HUD’s workforce affects not just numbers on a spreadsheet, but real people with families, mortgages, and career aspirations. Similarly, the reported 40% layoff at the FHA represents a significant disruption to the lives of hundreds of professionals who have dedicated themselves to supporting affordable homeownership.

These changes can have profound effects on morale, institutional knowledge, and the ability of agencies to fulfill their mandates effectively. It’s important to approach these transitions with empathy and to ensure that affected employees are provided with adequate support and resources for their next career steps.

Key Actors

Executive Order on Regulatory Reduction

One of the key initiatives of the Trump administration has been an executive order mandating that agencies “hire no more than one employee for every four employees that depart from federal service,” with some exceptions for national security and public safety roles 13. This order aims to significantly reduce the size of the federal workforce, including regulatory agencies.

The Trump administration’s approach to reshaping financial regulation is being driven by several key figures:

1. Russ Vought: As the acting head of the CFPB, Vought is a central figure in the administration’s regulatory reform efforts. His background includes:
   • Former Director of the Office of Management and Budget (OMB) under President Trump
   • Founder of the Center for Renewing America, a conservative think tank that “puts God, country, and the community at the center of the political debate in Washington.”
   • Advocate for reducing the CFPB’s authority and funding
2. Jonathan McKernan: Nominated as the permanent Director of the CFPB, McKernan brings a diverse background in financial regulation:
   • Previous service on the Board of Directors of the Federal Deposit Insurance Corporation (FDIC)
   • Experience in housing finance from his work at the Federal Housing Finance Agency (FHFA) and Treasury Department
   • Service as Senior Counsel at the United States Senate Committee on Banking, Housing, and Urban Affairs
3. Mark Calabria: Former FHFA Director under Trump 45. Appointed to a key role at the CFPB, working under the White House Office of Management and Budget (OMB), Calabria’s vision includes:
   • A focus on targeted enforcement against clear violators rather than broader regulatory initiatives
   • A shift away from using regulatory agencies for social engineering or redistributive purposes
   • An emphasis on market-driven solutions in housing finance
4. Bill Pulte: Nominated as the new Director of the Federal Housing Finance Agency (FHFA), Pulte brings a unique perspective:
   • CEO of private equity firm Pulte Capital Partners and a noted philanthropist
   • Grandson of Bill Pulte, founder of the home construction company Pulte Homes
   • Founder and chairman of the Detroit Blight Authority, a nonprofit organization working to stabilize neighborhoods

These key actors represent a significant shift in the leadership and direction of financial regulatory agencies, emphasizing reduced agency size and scope, more targeted enforcement, and greater emphasis on market-based solutions.

Conclusion: The Evolving Nature of Financial Regulation

The landscape of financial regulation in the United States has undergone significant transformation since the 2008 Global Financial Crisis. From the rapid expansion of regulatory agencies in the immediate aftermath of the crisis to the more recent efforts to streamline and reduce regulatory burdens, the pendulum of financial oversight continues to swing.

The growth of agencies like the CFPB, from its inception with 700 employees to its current size of over 1,700 staff, reflects the complex and evolving nature of financial markets and the perceived need for comprehensive oversight. Similarly, the expansion of the FDIC from 5,000 employees in 2008 to over 6,500 in 2024 underscores the increased responsibilities placed on regulatory agencies in the post-crisis era.

However, this expansion has not been without challenges. The potential for contradictory rules, agencies working at cross-purposes, and the added complexity of state-level actions have created a regulatory environment that is both intricate and, at times, inefficient. The substantial increase in compliance costs, with the average cost to originate a mortgage nearly tripling since before the Great Financial Crisis. highlights the tangible impact of this regulatory growth on the financial industry and, ultimately, consumers.

The Trump administration’s approach, characterized by efforts to reduce the size and scope of regulatory agencies, represents a significant shift in regulatory philosophy. Key appointments, such as Russ Vought as acting head of the CFPB, Jonathan McKernan as the nominated CFPB Director, and Mark Calabria’s role at OMB and CFPB, signal a move towards more targeted enforcement and a data-driven approach to regulation. The recent layoffs across agencies like HUD, FHA, USDA, and VA further underscore this commitment to downsizing the federal workforce.

While these changes aim to create a more efficient regulatory environment, they also raise important questions about the balance between regulatory relief and consumer protection. The human cost of these transitions, with thousands of dedicated public servants facing job uncertainty, cannot be overlooked. It’s crucial that any restructuring efforts are implemented with care and consideration for the affected employees and the vital roles they play in maintaining financial stability and consumer protection.

Looking ahead, the financial regulatory landscape will likely continue to evolve in response to technological innovations, emerging systemic risks, and changing political dynamics. The challenge for policymakers, regulators, and financial institutions will be to strike a balance between fostering innovation, ensuring market efficiency, and protecting consumers and the broader financial system.

As we move forward, it is clear that the debate over the appropriate level and nature of financial regulation is far from settled. The lessons learned from the expansion of regulatory agencies since the GFC, including the challenges of coordination and the potential for conflicting rules, will need to be carefully considered in shaping future regulatory approaches.

Ultimately, the goal of financial regulation remains constant: to ensure the stability and integrity of the financial system while promoting economic growth and protecting consumers. How this goal is achieved will continue to be a subject of intense debate and ongoing evolution in the years to come. The Trump administration’s current efforts to reshape the regulatory landscape represent a significant chapter in this ongoing narrative, with implications that will likely be felt well beyond its tenure.

As we navigate this complex regulatory environment, it will be crucial to remain vigilant in monitoring the impacts of these changes on financial stability, consumer protection, and market efficiency. The path forward will require thoughtful consideration of the lessons learned from both the expansion and contraction of regulatory oversight, always keeping in mind the ultimate goal of a robust, fair, and efficient financial system that serves the needs of all stakeholders.