BY Richard Summerfield
Since the financial crisis, banks and other financial institutions have grown accustomed in increased regulatory oversight and scrutiny. However, following calls from president Trump to overhaul the regulatory regime established under former president Obama, the US Treasury Department this week announced a wide ranging plan designed to remake the country's financial regulatory framework.
The nearly 150-page report produced by the Treasury has recommended more than 100 changes, most of which would be made through regulators rather than Congress. The most notable proposal concerned the easing of restrictions big banks now face in their trading operations, lightening the annual stress tests they must undergo and reducing the powers of the Consumer Financial Protection Bureau (CFPB) which has been has been aggressively pursuing financial institutions over their malfeasance.
Regarding the proposed changes, Treasury Secretary Steven Mnuchin said, “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."
The new plan would greatly expand the authority of the Financial Stability Oversight Council, as well as change the way global capital standards are implemented to help US banks compete with overseas rivals. Smaller banks will also stand to benefit from the new plan; those banks with less than $50bn in assets would be less constrained than their larger rivals who would be subject to greater – though reduced – regulatory oversight.
These changes, should they win approval, would be welcomed on Wall Street and by many financial institutions which have long complained that the existing regulatory framework was too overbearing. The promise of lighter capital and liquidity standards and reduced supervision has already helped boost shares of Goldman Sachs and Morgan Stanley.
Away from the US, the Treasury’s report was also critical of international standard-setting bodies including the Basel Committee on Banking Supervision and the Financial Stability Board, noting the bodies had “overlapping objectives” and displayed a lack of transparency in their deliberations.
One of the key tenets of President Trump’s election campaign was the reduction of regulatory oversight in a number of key areas, including financial services. With the publication of the Treasury’s recommendations, the beginning of the end of the Dodd-Frank Act may have begun.