White House set to relax banking rules
Treasury report includes a recommendation to ease 'stress tests' for large banks
17 June, 2017
The White House issued a roadmap for loosening US banking regulations, including a recommendation to ease "stress tests" for large banks, news wires reported, citing a report published by the Treasury last Monday. "A sensible rebalancing of regulatory principles is warranted in light of the significant improvement in the strength of the financial system and the economy," the Treasury said.
President Donald Trump requested the report in a February decree aimed at reducing the financial regulations imposed by the Dodd-Frank financial regulation law, adopted after a meltdown of the US mortgage market triggered the global financial crisis of 2008-2009. Dodd-Frank law toughened bank regulations, prohibited federally insured banks from engaging in risky trading, and established the Consumer Financial Protection Bureau to oversee credit cards, mortgages and other financial products, among other measures.
While they do not call for scrapping the entire law, the new measures would implement a series of far-reaching changes, especially over the supervision of large banks. The report calls for the size threshold at which banks are administered stress tests, which measure how they would weather possible economic troubles, to be increased from the current $50bn in assets, even for foreign banks. The recommendations do not provide a level. Some tests should be conducted every two years instead of annually, the report also says.
The Treasury also set its sights on the Bureau of Consumer Financial Protection, or CFPB, saying it requires a "significant restructuring." The agency "was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses," it said, recommending the president be given the power to fire its director.
The new proposals also target the Volcker rule, which prohibits banks that make loans and collect consumer deposits from making risky deals with their own funds. The regulation should no longer apply to midsize banks with less than $10bn in assets, the report says. It would also require "living wills" , which lay out how a bank would wind itself down in case of failure without damaging the entire financial system, to be submitted every two years instead of annually.
The nearly 150-page report suggested more than 100 changes, most of which would be made through regulators rather than Congress, Treasury Secretary Steven Mnuchin said in an interview.
According to him, the regulatory overhaul is needed to grow the economy, give consumers more choices and ensure US taxpayers would not have to bail out big banks again. By trying to make many of the changes through regulatory agencies, the Trump administration may avoid a lengthy and perhaps futile battle with Democratic lawmakers.
Democrats in the Senate can block legislation and are unlikely to support any overhaul that eases rules on big banks. Some of the Treasury's proposals, like defanging the CFPB, would require new laws to be written and therefore face an uphill political battle. Reform advocates and Democratic lawmakers were quick to criticise the plan as a handout to Wall Street and a dangerous one for US consumers who lost homes and jobs during the 2007-2009 financial crisis. The proposed changes would mostly benefit banks like JPMorgan Chase & Co, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.