The Trump administration on Monday finally began outlining its goals for reforming the financial system and sketched out its ambitions of rolling back many of the new laws and rules imposed on finance in the wake of the financial crisis by the Obama administration.
Given the time that has elapsed since the recession and the strengthened position of the financial system, the Treasury Department said in a 149-page report, it is time for a "sensible rebalancing of regulatory principles."
Broadly, the Treasury's vision mirrored that of House Republicans, who last week passed sweeping legislation to reduce many of the new rules in the name of boosting economic growth. And on Monday, Treasury Secretary Steven Mnuchin went further than before in supporting that conservative legislation, by saying that he supported it.
In some ways, the Treasury's list of recommendations, which was ordered by Trump in February, was not as aggressive as the legislation passed in the House. For instance, it recommended revising but not eliminating the "Volcker Rule," which prevents banks from speculating for profits with deposits insured by the federal government.
In other respects, though, the Trump administration's goals are more ambitious, even though the House GOP legislation is thought not to have a chance of clearing the Senate and becoming law. For example, the report suggested consolidating the host of agencies that oversee banks and financial markets, and empowering one body — the Financial Stability Oversight Council, chaired by Treasury Secretary Steven Mnuchin — to coordinate among agencies to prevent overlapping responsibilities.
The report met with favorable initial reviews from financial industry groups, many of whom met with Treasury officials and offered input while it was drafted.
Tim Pawlenty, the head of the industry group the Financial Services Roundtable, offered praise for the report, saying that it is "an important step toward modernizing America's financial regulatory system so both economic growth and consumer protection are advanced."
Conversely, the executive director of Americans for Financial Reform, a group that advocates tighter rules on Wall Street, reacted critically to the report. It "advances ideas that have been pushed by industry lobbyists since Dodd-Frank was passed," said Lisa Donner. "We need more effective regulation and enforcement, not rollbacks driven by Wall Street and predatory lenders."
One major feature of the report is regulatory relief for community banks and credit unions. Easing the burden on the small banks, especially the ones that serve rural areas, is a goal that has some bipartisan support on Capitol Hill, and Mnuchin was sure to highlight that aspect of the report Monday.
Otherwise, though, the Trump administration's intentions would bring them into conflict with liberal supporters of the rules imposed by the 2010 Dodd-Frank reform law.
Most controversially, perhaps, the report called for significantly limiting the power and discretion of the Consumer Financial Protection Bureau, the agency created to establish protections for consumers using mortgages, credit cards, payday loans, and other credit products. The report stated that the agency's "unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses," and called for it to be brought further under the oversight of Congress and the administration, and for it to lose its ability to directly supervise banks, mortgage companies, payday lenders, and other businesses.
The report offered the prospect of relief for big banks in addition to community banks, by calling for a review of the various new rules intended to require banks to maintain assets they can easily sell to get cash in a bind and to limit their overall indebtedness. In recent years, bankers have warned that those rules could have the unintended consequence of drying up liquidity during a period of financial turbulence.
As in the House Republican legislation, all banks would be allowed to opt out of more rules if they maintain a much higher level of capital. A higher capital level would mean that banks took on less debt, and that bank investors had more skin in the game.
Even without raising more capital, though, banks would get relief from the regular cycle of stress tests they much now undergo.
From the earlier days of his administration, Trump has boasted about his plans for undoing Dodd-Frank. While much of Treasury's recommendations could be accomplished through administrative action, other parts would require legislation. There, the vast bulk of it would be difficult to pass, given the possibility of a Democratic filibuster.
"Too many hardworking Americans still haven't fully recovered from the financial crisis, and Washington should be focused on protecting them by holding Wall Street accountable, not doing its bidding," said Sen. Sherrod Brown, D-Ohio, the ranking Democrat on the Banking Committee, in a statement on Monday's report. Brown faulted Treasury for listing 244 industry groups in the acknowledgment of commenters for the report, but only 14 consumer advocates and similarly small numbers of academics, think tanks, and government bodies.