On June 12, the Treasury Department released the first in a series of reports to President Donald J. Trump recommending executive actions and regulatory changes “that can be immediately undertaken to provide much-needed relief” for businesses affected by a regulatory build-up.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” Treasury Secretary Steven Mnuchin said in a statement. “We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products, while ensuring taxpayer-funded bailouts are truly a thing of the past.”
Executive Order 13772 instructed the Treasury Secretary to report to the President the extent to which the existing financial regulatory system promote the Administration’s “Core Principles” of financial regulation, which “include empowering Americans to make independent financial decisions, save for retirement, build wealth and prevent taxpayer-funded bailouts.” The principles also promote “American competitiveness, both at home and abroad, while making regulation efficient, effective and appropriately tailored.”
The new report, a response to that Executive Order, is the first in a series of reports examining the U.S. financial regulatory system. Subsequent reports will be issued over the coming months and will focus on markets, liquidity, central clearing, financial products, asset management, insurance, and innovation, among other key areas.
On April 21, 2017, President Trump also issued two Presidential Memoranda to the Secretary of the Treasury. One calls for it to review the Orderly Liquidation Authority established in Title II of the Dodd-Frank Act. The other calls for Treasury to review the process by which the Financial Stability Oversight Counsel determines that a nonbank financial company could pose a threat to the financial stability of the U.S., subjecting such an entity to supervision by the Federal Reserve and enhanced prudential standards, as well as the process by which the FSOC designates financial market utilities as systemically important.
The Treasury Department will conduct a review and submit separate reports to the President. Accordingly, the new report did not cover OLA or the FSOC designation process.
During the past four months, Mnuchin and other Treasury officials met with hundreds of stakeholders across the financial ecosystem, including community, independent, regional and large banks, regulators, consumer advocates, academics, analysts and investors. “These listening sessions provided a very clear picture of redundancy, fragmentation, and inefficiency in our regulatory framework,” a statement says.
Mnuchin also congratulated the House of Representatives for passing the Financial CHOICE Act. “We look forward to working on a parallel track with Congress to provide swift relief, particularly to community banks,” he said.
The report focused on several trends, including: capital, liquidity and leverage rules can be simplified to increase the flow of credit; the U.S. must ensure that banks are globally competitive; and improving market liquidity is critical for the U.S. economy.
Other conclusions and associated recommendations:
The Consumer Financial Protection Bureau must be reformed;
regulations need to be better tailored, more efficient, and effective; and
Congress should review the organization and mandates of the independent banking regulators to improve accountability.
As a next step, Treasury and the Trump Administration will begin working with Congress, independent regulators, the financial industry, and trade groups to implement the recommendations advocated in the report through changes to statutes, regulations and supervisory guidance.
Among the suggested actions contained in the report:
Congress should take action to reduce regulatory fragmentation, overlap, and duplication.
FSOC’s statutory mandate should be broadened so that it can assign a lead regulator as primary regulator on issues where agencies have conflicting or overlapping jurisdiction.
Financial regulatory agencies should work to harmonize cyber-security regulations.
Appropriate tailoring bank regulations to the size of institutions.
Establishing a “regulatory off-ramp” from all capital and liquidity requirements, nearly all aspects of Dodd-Frank’s enhanced prudential standards, and the Volcker Rule for depository institutions and holding companies.
Easing capital and stress-testing requirements for credit unions.
Reviewing regulatory examination overlap and duplication.
Reforming mortgage requirements.
Enhanced use of regulatory cost-benefit analysis.
Changing the threshold for compliance with living will requirements from current level of $50 billion.
Reducing burdens of the Volcker rule’s compliance regime.
Banks should be given greater ability to tailor their compliance programs to the particular activities engaged in by the bank and the particular risk profile of that activity.
Consideration should be given to permitting a banking entity that is sufficiently well capitalized, such that the risks posed by its proprietary trading are adequately mitigated by its capital, to opt out of the Volcker Rule.
Restructuring the CFPB as an independent multi-member commission or board that is funded through the annual congressional appropriations process.
Dozens of related recommendations, many specifically targeting broad-based goals with granular rule changes are included in the report. Compliance Week will provide an in-depth analysis of the report in our weekly newsletter on June 20.