Nearly four months after Donald Trump signed an executive order calling for a review of Wall Street regulations, the administration has laid out part one of its plans for reforming the system in a detailed report released by the Treasury Department late Monday.
Some of the more notable proposals in the highly-anticipated report – the first in a series that will detail the administration’s thinking on how it plans to proceed with paring back post-crisis regulations in the financial services industry – include: adjusting the annual stress tests, easing trading rules (i.e., gutting the Volcker Rule), and paring back the power of the watchdogs – like the Consumer Financial Protection Bureau.
The Treasury said its plan was designed to spur lending and job growth by making regulation ‘more efficient’ and less burdensome, according to Bloomberg although in reality it simply caters to the “requests” of Wall Street, which has been limited in its activities since Dodd-Frank, most notanly prop trading, although in most cases banks, like Goldman, have found simply loopholes around the Volcker Rule. Also of note, “unlike the bill passed last week by House Republicans, the report consistently calls for most Obama-era rules to be dialed back, not scrapped.”
In a statement released along with the report, Treasury Secretary Steven Mnuchin said that while the administration backs congressional efforts to roll back Dodd-Frank, the report focuses on actions that can be taken without involving Congress. In fact, between 70 and 80% of its recommended reforms can be made unilaterally through federal agencies’ independent rulemaking authorities.
As expected, Democrats were quick to criticize the plan with Ohio Senator Sherrod Brown, the ranking member of the Senate Banking Committee, claiming that the reforms would gut the Consumer Financial Protection Bureau, the centerpiece of Dodd-Frank. The report is extremely critical of the fledgling agency, accusing it of being “unaccountable” and possessing “unduly broad regulatory powers.” To rein in the bureau, the Treasury report calls for the president to be able to fire its director for any reason, not just for cause as is now the case, as Bloomberg noted.
“When Wall Street greed goes unchecked, American taxpayers and working families pay the price. 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 Sherrod Brown, the ranking Democrat on the Senate Banking Committee, in his response to the report.
Meanwhile, representatives of the banking industry expressed their support for the report’s findings.
“Today’s Treasury report is an important step to refine financial regulations to ensure that they are supporting — not inhibiting — economic expansion,” said ABA President and CEO Rob Nichols. “We applaud Secretary Steven Mnuchin for recognizing that we need regulatory reform to boost economic growth, and we expect this report will serve as a catalyst in that effort.”
As Bloomberg adds, some of the most unpopular regulations that the report asks to re-do, such as the Volcker Rule ban on banks’ proprietary trading, were put together by five different agencies. It was not immediately clear which bank was supervising them.
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In any case, just because the administration has found a way to bypass Congress doesn’t necessarily mean that the reforms will be swiftly implemented. Some of the report’s most ambitious recommendations – such as reforming the Volcker Rule ban on proprietary trading – will require the cooperation of numerous separate federal agencies, as Bloomberg noted.
On the Volcker Rule, Treasury outlined several ways that regulators and Congress should consider weakening it, Bloomberg reported. Banks with less than $10 billion in assets should be exempted altogether, the report argued. It also said all lenders should have more leeway to trade and that restrictions on banks’ investing in private-equity and hedge funds should be loosened.
In other words, a return to the way Wall Street was before the financial crisis.
Deregulation, slashing corporate taxes and ramping up infrastructure spending are the three core components of Trump’s economic agenda; without them, it is impossible for the economy to grow at the revised projected 3% GDP growth rate.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” Mnuchin said. “We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.”
Full report below (pdf link):
This post originally appeared on Zero Hedge