The 2008 financial crisis has been widely attributed to banks that failed after making huge, highly risky market trades. (Adobe Stock)

JEFFERSON CITY, Mo. – Consumer groups are warning that new financial rules will make a recession more likely – after the Trump administration moved to dramatically weaken banking regulations.



On Tuesday federal regulators approved major changes to the Volcker rule. Carter Dougherty, communications director with Americans for Financial Reform, says the rule was put in place after the 2008 financial crisis.



"The goal of the rule was in ensure that banks, if they gambled, they did it with their own money, that they did not leave taxpayers on the hook or that they did not create instability in the financial system," says Dougherty.



The Volcker rule prevents banks from using depositors’ money to make bets on market outcomes – trades that are backed with taxpayer money by the FDIC. Federal regulators appointed by President Trump argue the changes will give banks greater flexibility.



The changes loosen rules on what counts as proprietary trading, making it easier for banks to make riskier trades that have higher payoffs, because the FDIC backs them in case of losses. Dougherty says this removes a major pillar that protects the U.S. economy from another crash.



"The financial crisis brought on a recession that was the worst economic contraction since the Great Depression," says Dougherty. “Millions of Americans lost their homes, millions more lost their jobs. This is simply not something that you want to risk a repeat of."



Consumer groups are studying the new rules and may challenge this action in court.