Trump's Fed Pick Kevin Warsh Signals Sharp Turn Toward Deregulation and Eroding Central Bank Independence
President Donald Trump’s nomination of former Fed governor Kevin Warsh to lead the Federal Reserve is being viewed as a pivotal move that could reshape the central bank’s role as a financial regulator, potentially aligning its oversight functions more directly with the administration’s aggressive deregulation push.
While the President has publicly emphasized his desire for lower interest rates, Warsh’s confirmation would likely have a more profound impact on the Fed’s regulatory arm. In writings and speeches, Warsh has questioned the need for the Fed’s primacy in bank supervision, suggesting authority should be ceded to the Treasury Department and other agencies.
“I don’t believe the Fed is owed any particular deference in bank regulatory and supervisory policy,” Warsh wrote in a Wall Street Journal op-ed last year, arguing the central bank has been “exercising powers that are the province of the Treasury department.”
Market observers and former regulators warn that such a stance could significantly dilute the Fed’s independence at a critical time. “The Fed’s supervisory independence is a cornerstone of financial stability,” said a veteran banking analyst who requested anonymity. “Shifting that power to political appointees introduces a dangerous short-termism into oversight, just a decade after the last crisis.”
The Trump administration has already tested the boundaries of regulatory independence. A February executive order demanded agencies report to elected officials, and the Treasury has orchestrated an unprecedented level of coordination among traditionally separate watchdogs like the OCC and FDIC.
“Warsh is unusual in that he would be the first Fed chair to explicitly advocate for the Fed to follow the White House’s lead on bank regulation,” noted Jeremy Kress, a former Fed lawyer now at the University of Michigan.
Warsh, currently a fellow at Stanford’s Hoover Institution, has praised the administration’s deregulatory efforts and specifically lauded the work of Fed Vice Chair for Supervision Randal Quarles, a Trump appointee. Quarles has overseen efforts to streamline supervision and reduce the oversight division’s staff.
“The deregulatory agenda... has begun to liberate households and businesses from the dictates of Washington’s bureaucracy,” Warsh wrote last November.
Critics argue this coordinated push is dismantling essential safeguards. “After 2008, we built a system to ensure banks would never again need a massive public bailout,” said Lev Menand, a Columbia Law professor and former Treasury adviser. “This administration seems intent on reversing that. Warsh certainly shares this agenda.”
The practical effects could soon be tangible. The Fed, FDIC, and OCC are expected to propose revisions to post-crisis liquidity rules and capital standards in the coming months. With Warsh at the helm, proposals for lower capital requirements and less stringent liquidity rules would find a powerful ally.
“If Warsh comes in and says the board should run regulations through the White House, that would be a reduction in Fed authority we’ve never seen,” Menand added.
The Federal Reserve declined to comment on the nomination.
Voices from the Street
Eleanor Vance, Portfolio Manager at Clearwater Capital: "This is a logical step to streamline a fragmented regulatory landscape. The post-crisis rules were a blunt instrument. Warsh understands that efficient markets require proportionality, not just more red tape."
Marcus Thorne, Former FDIC Examiner: "It's a breathtaking assault on the principle of independent supervision. We're not talking about tweaking rules; we're talking about politicizing the very foundation of financial stability. It's a short-sighted gamble with taxpayer money."
Dr. Anika Patel, Economics Professor at Georgetown: "The long-term implications for the Fed's credibility are significant. Its regulatory independence is intertwined with its monetary policy credibility. Undermining one risks the other in the eyes of global markets."
Rick Bowers, Small Business Owner in Ohio: "Finally! Someone in Washington who gets that banks are drowning in compliance costs instead of lending to folks like me. This could free up credit and get the economy moving faster."