1. United States
2. Ohio
3. Letter

The next shock to our economy could come from anywhere. In the past 20 years, one major economic crisis started with bad mortgages, while the other started with a deadly virus. Since it’s impossible to predict or totally eliminate these risks, the best protection we have is to ensure that our economic infrastructure — specifically, our financial institutions — is strong enough to survive whatever threat comes next. Unfortunately, the Trump administration is tearing away every layer of protection that was designed to fortify those institutions, leaving them, and our economy, vulnerable. The first set of protections being gutted are the rules set by government agencies to keep banks, and the financial system, safe. Some of the most significant of these rules are the limits on the amount of debt banks can use to fund their risky bets, forcing them to put up some of their own money. These “capital requirements” are the difference between banks’ survival and failure, requiring taxpayers to bail them out. The requirements were strengthened after the 2008 financial crisis, and they helped banks weather the storm of Covid-19. Almost all of these limits are being undone. Regulators are gutting the capital requirements that are sensitive to the riskiness of banks’ business, the ones that are risk-neutral, the ones determined by banks’ performance in annual stress tests and the ones that require additional protection for the “too big to fail” banks. This wholesale deregulation will allow banks to load up on more debt and have less of their own money available to absorb losses when their investments go south.