By routing these ‘financial reforms’ through regulatory agencies rather than the U.S. Congress, the Trump Administration is loosening the regulatory scrutiny that was placed on big banks following the 2007-2009 financial crisis.
With the U.S. Treasury Department unveiling sweeping reforms of the country’s financial regulatory framework, many items on Wall Street’s wish list could see the light of day.
The nearly 150 page report suggests more than 100 changes, most of which is likely to be made through regulators rather than Congress, said Steven Mnuchin, the Treasury Secretary.
“We were very focused on, what we can do by executive order and through regulators. We think about 80 percent of the substance in the report can be accomplished by regulatory changes, and about 20 percent by legislation,” said Mnuchin.
Although U.S. President Donald Trump has gradually been nominating heads of financial agencies to carry out his agenda, only Mnuchin and Jay Clayton, Chairman of the Securities and Exchange Commission, have been approved by Congress. Many agencies are operating under “acting” chiefs or are continuing with leaders who have been appointed by the previous U.S. Administration.
Among the changes the Treasury Department has proposed includes easing restrictions big banks, loosening the annual stress tests they must compulsorily undergo.
While the Treasury wants to diminish the powers of the Consumer Financial Protection Bureau (CFPB), which has been aggressively pursuing bad and erratic behavior by financial institutions, it wants to expand the authority of the Financial Stability Oversight Council, chaired by Mnuchin.
The Treasury also wants to change the way global capital standards are implemented in order to give U.S. banks an advantage over their foreign rivals.
As per the suggested changes, smaller banks would also get some relief – financial institutions whose assets are worth less than $50 billion will have to jump through fewer regulatory hoops than their rivals who have multitrillion-dollar balance sheets.
If the proposed changes are accepted, the following banks will be benefitted: Bank of America Corp, JPMorgan Chase & Co, Goldman Sachs Group Inc, Citigroup Inc, Morgan Stanley, and Wells Fargo & Co.
Industry trade groups have appreciated the proposed changes while wishing they would be more specific on tricky questions, and set levels after which the assets of banks will come under stricter scrutiny.
“This is the first time in a while where there’s been an official undertaking where our concerns resonated with the folks in the driver’s seat,” said Rich Foster, senior counsel for Financial Services Roundtable, a trade group.
Representatives for the six large U.S. banks declined comment or did not immediately respond to comments or said they were reviewing the document.
Reform advocates and Democratic lawmakers have come down strongly on the proposals saying they are dangerous for U.S. consumers who lost jobs and homes in the 2007-2009 financial crisis.
After tall there is a reason why these large financial institutions were put under strict regulatory compliances.
Democratic Senator Elizabeth Warren, said it would “make it easier for big banks to cheat their customers and spark another financial meltdown.”
Democratic Senator Sherrod Brown noted that the Treasury consulted more with industry groups rather than consumer groups, by a ratio of 17-to-1, while developing its report.
“The Treasury proposal advances ideas that have been pushed by industry lobbyists since Dodd-Frank was passed,” said Lisa Donner, executive director of Americans for Financial Reform. “We need more effective regulation and enforcement, not rollbacks driven by Wall Street and predatory lenders.”
With the Trump Administration strategically routing the changes through regulatory agencies, it could avoid a lengthy and possibly futile battle with Democratic lawmakers.
Although the Republicans control both the Congress and the White House, Democrats in the Senate can effectively block legislation that ease regulatory framework for big financial institutions.