A trader works on the floor of the New York Stock Exchange (NYSE) at the opening bell in New York on Jan. 23, 2026.TIMOTHY A. CLARY/AFP/Getty Images
Chris Gay is a former Wall Street Journal staffer. He has also worked or written for U.S. News and World Report, the Far Eastern Economic Review, Forbes, Slate and others. He writes the newsletter Figure at Center.
Vegas and Wall Street have way too much in common, but there is one critical difference: What happens on Wall Street tends not to stay there. That’s why the world should worry when the Masters of the Universe start emitting hints of crisis.
The news site DCReport ran an exclusive article recently suggesting that unnamed too-big-to-fail banks are feeling a bit stressed these days. The evidence: sudden, highly unusual infusions of New York Federal Reserve cash into the banks since October totalling at least US$85-billion, and a drastic relaxation of the limits on these transactions in early December, possibly to save one of them from the consequences of reckless speculation.
Does this mean the U.S. financial system – and by implication the world’s – is circling the drain of the next meltdown? Probably not, but because markets are so easily spooked it doesn’t help that the Trump regime is creating the kryptonite of uncertainty by moving to weaken regulatory guardrails put up for good reason following the fiasco of 2008.
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Its chief instrument here seems to be Michelle Bowman, since June the Fed’s vice-chair of supervision, a role critical to bank regulation. As a shot across the regulatory bow, Ms. Bowman has announced plans to cut the Fed’s Washington staff 30 per cent by year’s end, largely through attrition and voluntary departures. (Current chair Jerome Powell had already planned a 10-per-cent cut.) Ms. Bowman says that won’t impair oversight, which resides in the Fed’s 12 regional banks, not in Washington. Massachusetts Democratic Senator Elizabeth Warren, a harsh critic of Wall Street, doesn’t buy it, warning that the Fed is “taking more cops off of the Wall Street beat” and risking a return to the reckless behaviour of the early 2000s.
Ms. Bowman has also rebranded part of the Division of Supervision and Regulation as the “business enablement group.” Time will tell whether enablement means “regulatory capture” by powerful industries over agencies that are supposed to police them.
Meanwhile, the Fed is revamping the “stress tests” it uses to assess bank resilience in a crisis. Ms. Bowman says this will enhance system-wide risk monitoring. Her predecessor, Michael Barr, isn’t so sure, warning in October that the proposed revisions “will provide illusory comfort in the resilience of the system.”
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The biggest banks passed their latest stress tests and posted strong results in 2025, but did so under less rigorous standards than the previous year’s, the Fed concedes.
The retreat from postcrisis regulation is not new to Trump 2.0. Trump 1.0 pared back rules instituted under the 2010 Dodd-Frank Act, Washington’s postcrash attempt to make banks less risky. The 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act raised the threshold for the strictest level of testing to US$250-billion in assets from US$50-billion, reducing to 12 from 38 the number of banks subject to the most stringent supervision. Many blame the change for the 2023 collapse of Silicon Valley Bank.
The thing to remember about systemic financial crises is that they don’t happen at the moment when banks default and stock prices collapse; that’s just the moment when most people notice. They happen in a years-long cycle that proceeds something like 1) easy credit, lax regulation and bubble formation, 2) a Minsky moment that deflates the bubble, 3) government bailouts of the culprits, 4) a new round of prudential regulations.
Gamble, fail, bail, repeat. See how that works?
Problem is, legislators and regulators, like the people who built the Maginot Line, are often girding for the last war, not the next one. All the while, a new generation of risk agents is inflating the next asset bubble.
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The loudest proponent of guardrail removal, of course, is the financial-services lobby, which would do well to recall that former Fed chair Alan Greenspan, once the high priest of light regulation, was forced in 2008 to refute his own claim that financial markets self-regulate, telling Congress that the crisis unfolding as he spoke had revealed a “flaw” in his free-market ideology. That’s a bit like saying that there was a little problem at Chernobyl.
Keep in mind also that there is still such a thing as a shadow banking system, where risk proliferates outside regulatory purview, and that black swans are always hovering somewhere. As economists Carmen Reinhart and Kenneth Rogoff’s note in their excellent 2009 book This Time Is Different: Eight Centuries of Financial Folly – the title a reference to “the most dangerous four words in investing” – “What one does see, again and again in the history of financial crises is that when an accident is waiting to happen, it usually does.”