Steering Into the storm: How US deregulation risks global financial crisis
8 October 2025 - President Trump is now actively dismantling mechanisms designed to identify and manage systemic financial and climate risks, writes Eliot Whittington, executive director of the Cambridge Institute for Sustainability Leadership (CISL).
Last week, President Trump stood before the United Nations General Assembly and in a wide ranging speech dismissed climate change as "the greatest con job ever perpetrated on the world". This is easy to chalk up as another example of the increasingly polarised politics of how we manage our society and protect our environment, but it also represents a dangerous approach to governance that is steering the American economy, and by extension the global financial system, toward potentially catastrophic risks.
A decade ago, Mark Carney, the then-Governor of the Bank of England and now Prime Minister of Canada, delivered his own speech with a warning of how "the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors."
Carney sounded alarms about climate change as a fundamental threat to financial stability, warning that "once climate change becomes a defining issue for financial stability, it may already be too late". He identified the need to prepare financial systems for climate risks, and regulators have been responding to that, with increased transparency and accountability around the risks he identified.
Trump is now actively dismantling many of the mechanisms designed to identify and manage such systemic threats.
The Trump administration's approach to financial regulation is dramatically deregulatory. Since January, the administration has implemented regulatory freezes, reduced oversight, eliminated guidance materials, and moved to weaken stress testing requirements for major financial institutions.
Given that many aspects of financial regulation were at an all-time high, it is very possible to argue that this is not inherently bad. But there is pattern of systematically reducing transparency and accountability while concentrating risk-taking power in corporate boardrooms that obscures rather than reveals major risks, while at the same time the US government and other industrialised countries have put themselves in a position that they are increasingly ill-prepared to cope with those systemic impacts if they happen.
The consequences extend far beyond American borders. The US financial system remains the world's most interconnected, and instability here ripples globally with particular severity for developing economies. When Trump tells the UN that countries pursuing climate action "are going to fail", he's not just expressing policy preferences - he's undermining the international cooperation essential for managing global systemic risks.
And of course the US isn't the only deregulatory state right now – the UK and EU are both competing to cut red tape as well. The US race to the bottom alongside a sense that regulation is holding back growth has prompted a general regulatory strategy rethink. But the goals and ambitions of those regulations were important and have not gone away.
This isn't just about climate change. It's about how we prepare for and manage any systemic risk that threatens economic stability. The Covid-19 pandemic, the 2008 global financial crisis, supply chain disruptions - in each case, it was government intervention and coordinated regulatory response that prevented complete economic collapse. Yet Trump's "turbocharged deregulation" is systematically dismantling these very capabilities.
Business leaders typically welcome reduced oversight and regulatory burden, and the stock market has generally applauded Trump's deregulatory agenda. Of course deregulation can boost short-term profits by reducing compliance costs and increasing operational flexibility. And risk taking is what the private sector is good at. But this market enthusiasm obscures the wider risks.
Financial regulation helps manage collective risks that no single firm can address alone. When banks were allowed to increase leverage ratios in the lead-up to 2008, individual institutions initially benefited from higher returns. The systemic consequences became apparent only when the entire financial system nearly collapsed.
Trump is steering the US economy into stormy seas while switching off the searchlights and forbidding lookouts from scanning for rocks. Companies that succeed in this environment may do so by taking risks that appear profitable in isolation but could be catastrophic when aggregated across the entire system.
First published in BusinessGreen 30 September 2025