The Trump administration’s push to assert presidential control over independent financial regulators should jolt the nation. If successful, one politician could soon have unprecedented sway over who gets a loan, how trillions in capital are priced and allocated, and which firms rise or fall.
Trump and his allies argue that because the Constitution commands the president to “take care that the laws be faithfully executed” he has firing power over all federal watchdogs, including those historically shielded from political interference, such as the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corporation, and others.
If the courts endorse this theory, the White House would hold the reins to agencies overseeing more than $150 trillion in financial assets—roughly five times U.S. gross domestic product and more than double the size of global equity markets. That is enough leverage to reward allies, punish dissenters, and weaponize finance to pursue short-term political objectives at the expense of the country’s long-term economic health. It would rival, and potentially eclipse, Congress’s constitutional power of the purse.
But let’s not romanticize the status quo. Today’s fragmented regulatory regime is hardly a model of democratic accountability or technical efficiency. Consider the Federal Reserve: It supervises the largest bank holding companies and other important financial institutions, but publicly discloses only stress-test summaries and broad enforcement actions. The Fed’s internal deliberations, examiner reports, and supervisory data remain largely inaccessible to both Congress and the public, hindering retrospective evaluations of its regulatory effectiveness. After Silicon Valley Bank’s collapse in 2023, the Fed’s oversight missteps surfaced only slowly—under pressure from Congress and through selective disclosures. No timely data, no accountability.
This opacity empowers unelected technocrats—often revolving-door insiders with deep industry ties—to shape the financial system with minimal oversight. This was one of the key drivers of the 2008-09 financial crisis. Regulators missed the buildup of systemic risk because no one—not Congress, not the White House, not the public—had full visibility into the financial industry’s actions until it was too late.
Similarly, the SEC operates with sweeping authority and little transparency. It rarely explains the rationale behind enforcement actions. It has been criticized for inconsistent ESG rules, selective crypto crackdowns, and “regulation by enforcement”—a practice a federal judge recently warned can erode legal clarity in fast-moving markets.
Yet decades of research tells us that political control over financial regulators—whether budgetary control or day-to-day operational control—leads to more frequent crises, wasteful bailouts, and misdirected capital. It also says the pace of financial innovation demands expert oversight, not slow-moving political micromanagement. The rise of fintech, stablecoins, and algorithmic credit models shows just how fast markets evolve—and how poorly rigid political processes keep up.
Studies also show independence without transparency breeds regulatory capture. Lobbyists thrive where sunlight is scarce. The financial industry spends more than $600 million annually on federal lobbying—more than defense contractors. It often directs its influence precisely at the agencies meant to constrain it.
So we are caught in a dangerous bind. Give political leaders direct control, and credit becomes a tool of power. Leave it to unelected technocrats, and capture, complacency, and drift set in. As President James Madison warned, we must first empower the government to control the governed—and then oblige it to control itself.
The goal isn’t to choose between technocracy and tyranny. It’s to build a system with expertise, transparency, and clear lines of democratic accountability.
Publish exam manuals. Release granular supervisory data. Require senior regulators to defend their records in open hearings. Sunlight, as Supreme Court Justice Louis Brandeis said, is the best disinfectant. Only with visibility can the public and elected officials hold all regulators accountable. That is as true for bank supervisors as it is for the SEC, the CFTC, and others now shaping trillion-dollar markets that are largely out of public view, such as private equity and crypto.
Regulators often caution that increased transparency might incite market panic or instability. But secrecy hasn’t prevented crises. It has enabled them. Without sunlight, there are no real checks on those who wield financial power, whether they are unelected bureaucrats or the current or future president.
Clarify the law. Congress has long outsourced hard decisions through vague mandates like “ensure safety and soundness” or “address systemic risk.” For instance, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act gave regulators sweeping discretion to decide which institutions are systemically important and therefore too big or interconnected to fail, what rules they must follow, and when to step in. Some flexibility is necessary, but this broad ambiguity renders accountability impossible. Lawmakers should spell out monitorable goals so regulators can be judged on their performance, and so courts, presidents, and voters can’t reinterpret laws to suit their whims.
Finally, focus on proper regulatory structure. All financial regulators should be multi-member commissions with staggered terms and limited, specified grounds for removal. That would prevent partisan swings while preserving expertise and institutional memory.
At stake isn’t just regulatory design. It’s the foundation of American capitalism. Market economies thrive when capital flows based on merit, not mandates. When credit decisions are centralized—whether in a White House war room or a closed-door regulatory clique—cronyism spreads, innovation stalls, and fragility rises.
Get the governance of finance wrong, and we’ll wake up in a country where capital flows not to the best ideas, but to the best connected. The question isn’t whether we regulate. It is who watches the watchdogs—and how.
About the authors: Ross Levine is a senior fellow at the Hoover Institution and co-author of Guardians of Finance: Making Regulators Work for Us. Amit Seru is a senior fellow at the Hoover Institution and the Steven and Roberta Denning professor of finance at the Stanford Graduate School of Business.
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