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Treasury proposes regulatory rollback

The Trump administration issued its first report Monday on how it would like to see Dodd-Frank Wall Street Reform and Consumer Protection Act reforms take shape.

A U.S. Treasury report released by Secretary Steven Mnuchin has called for a significant overhaul of the financial rules passed under the Obama administration. Notably, it recommends restructuring the Consumer Financial Protection Bureau (CFPB) to curtail the scope of its authority and power. It also calls for a loosening the rules on Wall Street and big banks passed after the financial crisis, providing "an off-ramp" from Dodd-Frank in return for maintaining a higher capital standard. It also calls for significantly lighter regulations on community banks and credit unions that make mortgage loans.

treasury“Treasury has identified numerous regulatory factors that are unnecessarily limiting the flow of credit to consumers and businesses and thereby constraining economic growth and vitality,” the report said.

“Some of these regulatory factors also unnecessarily restrict the range of choices and options for borrowers, particularly consumers, through undue restrictions on banks’ ability to design and deliver responsible lending products,” the report said. 

Mnuchin released the report pursuant to an executive order issued by President Donald Trump that required Treasury to evaluate the impact of financial regulations. Many of the large-scale changes would require Congress to change the law. This won’t be easy because Republicans in the U.S. Senate need 60 votes and hold just a four-vote majority, and Democrats have vowed to fight any changes that would strip away the post-crisis rules on Wall Street banks and lighten consumer protections.

Last week, the U.S. House of Representatives passed the Republican led CHOICE Act, which would roll back much of Dodd-Frank. Treasury’s recommendations were similar in many ways, but have called for less dramatic changes in others. For example, Treasury does not recommend a total repeal of the Volcker rule, which prohibits banks from engaging in speculative trading. It does relax the restrictions, however. The CHOICE Act received no support from House Democrats.

Like the CHOICE Act, Treasury is recommending significant changes to the CFPB. The restructuring would require congressional action, but CFPB's policies could be altered internally on how it creates and enforces its rules. Treasury says the CFPB’s director should be removable at will by the president, or the agency should be restructured so as to be led by a commission. Congress should be given the power over the CFPB’s budget. The agency, according to the Treasury report, also needs to be reformed  to “ensure that regulated entities have adequate notice of CFPB interpretations of law before subjecting them to enforcement actions; and curbing abuses in investigations and enforcement actions.”

The report also recommends easing the regulations and simplifying the reporting and supervisory requirements on on smaller banks and credits unions with assets under $50 billion. Easing regulatory restrictions on smaller lenders is one area where there could be some bipartisan agreement, according to analysts. 

“In order to promote the orderly operation and expansion of the community banking and credit union sector, Treasury recommends that the overall regulatory burden be significantly adjusted. This is appropriate in light of the complexity and lack of systemic risk of such financial institutions,” the Treasury report said.

In a press release, the American Bankers Association praised Treasury’s report as “a catalyst” for reform, while some Democrats have already lambasted the findings.  


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