PRESIDENT WANTS CONGRESS TO LOOSEN FINANCIAL RULES
major provisions of the DoddFrank law, which was passed in 2010. His order directed Mnuchin to take steps to ensure that the law aligns with the administration’s goals.
While the Trump administration cannot roll back the law on its own, the law does give the president broad authority to determine how its rules are executed. Mnuchin said at a congressional hearing Monday that the administration could implement many of the changes in the report on its own.
The Trump administration is hopeful that Congress will act to further loosen financial regulations. The Treasury report came less than a week after the House passed the Financial Choice Act with the support of only Republicans.
If passed, it would exempt some financial institutions that meet capital and liquidity requirements from many of Dodd-frank’s restrictions on risk-taking. It would also replace Dodd-frank’s method of dealing with large and failing financial institutions, known as the orderly liquidation authority — which critics say reinforces the idea that some banks are too big to fail — with a new bankruptcy code provision.
The Senate is working on its own legislation on financial regulations, but analysts think that passage of a bill is unlikely because Republicans do not have enough votes without help from Democrats, who supported Dodd-frank.
The Trump administration has been supportive of the House bill, although the Treasury report did not go as far as the House plan in some regards. For instance, it would exempt smaller institutions from the Volcker Rule rather than revoking it entirely. The Volcker Rule, a Dodd-frank provision, bans banks from trading for their own gain and limits ownership in hedge funds and private equity deals.
The Trump deregulation plan sets up a clash between Trump and one of his most vocal Democratic critics: Sen. Elizabeth Warren of Massachusetts. The Consumer Financial Protection Bureau was her brainchild. Among other approaches to scaling back its power, the Treasury report called for its funding structure to be changed so it is beholden to the annual appropriations process.
“The CFPB was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses,” the report said. “The CFPB’S approach to rule making and enforcement has hindered consumer access to credit, limited innovation and imposed unduly high compliance burdens, particularly on small institutions.”
The report did not take up many other important financial-regulation issues, but several more reports from the Treasury are due this year. The report did not address reform of the government-controlled mortgage finance giants Fannie Mae and Freddie Mac, which have been in a government conservatorship for nearly nine years.
But the report did focus a good deal on the effect of postcrisis regulations on the mortgage market, saying that some of the rules had added costs to the business of servicing mortgages. The report said “increased oversight and regulation has led to an increase in compliance costs,” which limits the ability of mortgage firms to spend more money “on developing more effective mortgage servicing platforms and technology.”
The Treasury recommended a slowdown in new regulations for mortgage servicers.
Many of the regulations imposed on mortgage servicers came about because of foreclosure abuses during the financial crisis that led big banks to pay tens of billions in fines and restitution.
However, the report recommended a number of regulatory changes to spur greater mortgage origination. In particular, the report said, there needs to be “careful study of regulations and the extent to which they may be holding back the supply of mortgage credit.”
The financial industry cheered the Treasury report as a step in the right direction.
“Today’s report is an important step towards modernizing America’s financial regulatory system so both economic growth and consumer protection are advanced,” said Tim Pawlenty, chief executive of the Financial Services Roundtable.
Some of the changes, such as revising the Volcker rule, would largely be a moot point, as banks sold off their proprietary trading desks years ago. While Republicans have generally been in favor of rolling back Dodd-frank, the plan would open the door to loosening capital requirements they tend to support.
Progressive groups condemned the recommendations as proposals that would put the economy at risk and allow the same practices that led to the recession.
“The financial crisis had devastating costs for families and communities, and everyday abuses in financial markets cost people tens of billions of dollars a year,” said Lisa Donner, executive director of Americans for Financial Reform. “Financial reform has made the system safer, and the CFPB is returning billions of dollars to consumers facing industry tricks and traps.”