Softer banking rules urged
The Treasury Department on Monday called for scrapping or softening some of the rules for banks and other financial firms put in place after the 2008 financial crisis.
In a nearly 150-page report, Treasury recommends more than 100 changes to financial rules, some of which could have a major impact on the type of credit made available to American families and businesses.
Broadly, the report recommends streamlining supervision of the financial sector and giving political leaders more influence over the process — taking away some power from independent regulators.
Specifically, the report calls says the White House
should have the ability to fire the head of the Consumer Financial Protection Bureau — an independent consumer watchdog agency created in 2010 — and giving Congress the ability to slash that agency’s budget.
But many of the other recommendations are meant to help eliminate rules that impact small and regional banks, which Treasury officials believe are ensnared by regulations designed for the country’s largest lenders.
Treasury Secretary Steven Mnuchin, talking about the report at a congressional hearing, said its focus was “what are the things that we can do to unlock burdensome regulations and overlapping regulations and work with the regulators.”
The report is part of a broader debate about how the financial sector should be regulated, and whether current regulations are needlessly hindering economic growth. Many supporters of the current rules believe they protect consumers from abusive lending and have prevented banks from taking on so much risk that they threaten the broader financial sector.
The report stopped short of calling for the repeal of the Dodd-Frank financial regulation law, which the Obama administration and Democrats in Congress pushed into law in 2010. Treasury officials support a House GOP bill that would effectively gut many parts of the law, but Treasury’s new list of recommendations focuses on other, targeted changes that could be made in the absence of a repeal of that law.
These include exempting many banks from certain “stress tests” that are supposed to gauge how they would weather future economic strains. It also calls for exempting most banks from a Dodd-Frank provision known as the “Volcker Rule,” which essentially limits a company’s ability to make certain types of trades.
Treasury stops short of specifying precisely what size bank should have to follow the Volcker Rule. It calls for scaling back regulations, but, in some cases, doesn’t give precise recommendations for which banks should face rules.
The banking system is overseen by a patchwork of regulators, many of which have competing interests and overlapping jurisdictions. Before the financial crisis, a number of financial companies took advantage of this phenomenon by playing the regulators off each other and shopping for the lightest approach.
The Dodd-Frank law was supposed to streamline some of this supervision, but it stopped short of a wholesale overhaul, in part because it was too politically difficult.
President Donald Trump — who received the recommendations from Mnuchin in the Oval Office Monday — has called for a complete overhaul of financial-sector rules, saying that restrictions are hurting lending and holding back economic growth.
There’s debate about whether the banking rules put in place after the financial crisis are preventing banks from lending. Many financial companies, particularly small banks, say they are being smothered with so many regulations that they can’t lend. They say this is leading to largescale consolidation within the industry, as many companies are forced to sell themselves or risk closure.
But federal data show the banking sector is healthy, with a near-record number of outstanding loans extended to borrowers.
Mnuchin, a former banker, has talked about the financial regulations more carefully than Trump. He has called for making changes — some of them substantial — but he has stopped short of calling for gutting all of the new rules. Instead, he has said targeted changes could be done to ease restrictions and fuel more lending, and he outlined many of those changes in Treasury’s new report.
And in some cases, Mnuchin is calling for expanding the architecture that Dodd-Frank put in place.
For example, DoddFrank created the Financial Stability Oversight Council, which is compromised of the top financial regulators and tasked with monitoring risks that could spark a crisis. The new Treasury report will expand the ability of this council so that it has more power to coordinate how regulations are enforced.