Immediate reactions unsurprisingly reflected a Rorschach effect. Those on the left assailed what they decried as a dangerous attempt to dismantle safeguards that will prevent another financial meltdown. Conservatives and industry types called it a measured update of post-crisis regulations run amok.
By any measure, the administration’s roadmap staked out a more moderate approach than the one prescribed by House Republicans in the bill they approved last week with no Democratic support. That package, the Financial CHOICE Act, amounted to a wholesale gutting of the Obama-era Dodd-Frank law.
The 147-page Treasury report, the first of four laying out the Trump administration’s plan for rewiring financial regulations, covered a lot of ground. Among its recommendations, the document proposes:
— A “significant restructuring” of the Consumer Financial Protection Bureau, though it avoids specifics:
The report calls out the six-year-old agency for “regulatory abuses and excesses” that it says have “hindered consumer access to credit, limited innovation and imposed unduly high compliance burdens, particularly on small institutions.” It floats dramatically weakening the bureau — by empowering the president to remove its director; or restructuring it as a multi-member commission; or subjecting its funding, which now runs through the Fed, to congressional appropriations — without explicitly endorsing any of those suggestions.
Democrats view the agency, the brainchild of now-Sen. Elizabeth Warren (D-Mass.), as a signal achievement of Dodd-Frank, pointing to nearly $12 billion they say it’s returned to some 27 million consumers.
The bill that House Republicans approved last week called for eliminating the CFPB altogether, but Democrats view any attempt at major surgery on it as a nonstarter. “It comes as no surprise that Donald Trump and Steven Mnuchin — two men who were deeply involved in companies that cheated thousands of customers — would want to gut the agency that’s held cheaters accountable,” Warren said in a statement on the report.
– Preserving the Volcker Rule while scaling it back:
Treasury says institutions with less than $10 billion in assets should be exempt from the rule, which bans banks from engaging in certain types of risky investments. And it says the prohibition should only apply to bigger banks that surpass an unspecified level of trading assets and liabilities. Further, the report suggests simplifying compliance for every outfit subject to the rule.
The House GOP bill would junk it entirely.
— Expanding the super-committee of regulators, called the Financial Stability Oversight Council, established by Dodd-Frank:
The panel of top regulators from across government exists to monitor emerging risks and coordinate the federal response. And the report says it should play a larger role, with the ability to name a lead regulator when jurisdictions overlap.
— Paring back annual stress tests on banks to a two-year schedule:
And it says regulators should be empowered to tailor requirements of the tests to the size and complexity of banks.
— A “modernization” of the Community Reinvestment Act, the 1977 law requiring banks to loan in neighborhoods in which they operate. Treasury says it intends to “comprehensively assess” how the law, long a Republican bugaboo, can better meet its founding purpose.
— Exempting banks that maintain a sufficiently high level of capital from some Dodd-Frank regulatory burdens:
The idea, aimed at smaller institutions, is a central plank of the House Republican plan.
This report focuses on lending. Trump as a candidate consistently blamed Dodd-Frank for choking off lending, a phenomenon he said was hobbling economic growth. “I think absolutely, Dodd-Frank has to be either eliminated or changed greatly,” Trump said in an CNBC interview last year. “The regulatory climate is so bad that the banks just aren’t loaning to businesses… And that’s one of the reasons you have GDP there. It’s one of the reasons we have no growth.”
(Watch, or really, listen to him, here:)
But my colleague Damian Paletta offers some important perspective on the facts on the ground in his write-up:
There is debate about whether the banking rules put in place after the financial crisis are preventing banks from lending. Many financial companies, particularly small banks, say they are being smothered with so many regulations that they can’t lend. They say this is leading to large-scale consolidation within the industry, as many companies are forced to sell themselves or risk closure.
Those statements, however, are at odds with federal data showing the banking sector is healthy, with a near-record number of outstanding loans extended to borrowers. Federal Reserve data show there was about $2.1 trillion in outstanding commercial and industrial loans as of May, more than at any period before the financial crisis.
And total loan and lease balances rose close to $360 billion at the end of March, up 4 percent from a year earlier, according to data from the Federal Deposit Insurance Corp.
Initial reactions to the report tended to see what they wanted in it, as Reuters’ Pete Schroeder noticed:
Sen. Sherrod Brown (D-Ohio), the ranking member on the Senate Banking Committee, described the report as a Wall Street giveaway. "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," he said in a statement.
Brown tallied the more than 500 people that Treasury consulted in assembling the report and found banking interests outnumbered consumer groups by a ratio of 17-to-1.
Meanwhile, Jeff Emerson, spokesman for House Financial Services Committee Chairman Jeb Hensarling (R-Texas), suggested the report refuted our framing yesterday of the administration distancing itself from the CHOICE Act. "We are reviewing this and don't feel like much of an orphan at all," he said, pointing to the eased rules for banks holding more capital, the restructured CFPB, and tailored regulations for community banks. "There's a lot of overlap."
The Wall Street Journal's Greg Ip found the Treasury report measured:
As did the Washington bureau chief for the American Banker:
Marcus Stanley, policy director of Americans for Financial Reform, which consulted with Treasury, was unhappy with the result. "The proposal subjects key systemic risk protections ranging from the Volcker Rule to capital protections to a death by a thousand cuts," he said in a statement. "Since most of these changes can be made by administrative action, the Trump administration could unilaterally introduce major additional risks to our financial system."
And David Hirschmann, president and CEO of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness, called the report "a signal that this administration is going to walk the walk when it comes to relieving Main Street from the overzealous, post-crisis regulatory regime."
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— The Federal Open Market Committee kicks off a two-day meeting today, with wide consensus it will raise the benchmark interest rate for the third time in six months. And the Fed could announce plans to start reducing its $4.5 trillion portfolio.
— Treasury Secretary Steve Mnuchin on Monday acknowledged the the department only has enough money to keep the government funded through early September.
That should pile pressure on lawmakers to lift the debt ceiling well before the deadline approaches, and with it, the market-rattling specter of a default. But the Treasury secretary also said he's got fallback plans in place if Congress fails to act before the August recess, an admission that could remove the urgency to get moving on the matter, as one CNN producer on the Hill pointed out:
— Meanwhile, the White House has declared this Workforce Development Week, which can only mean one thing: More distractions issuing from the Trump team’s handling of the investigation into its alleged Russia ties.
The latest firestorm erupted Monday night, when Christopher Ruddy, CEO of Newsmax Media and a personal friend of the president’s, said in an appearance on PBS’s “NewsHour” that Trump is considering firing Robert S. Mueller III, the special counsel probing Russia’s election meddling.
Ruddy made the comments after a Monday visit to the White House, but press secretary Sean Spicer said he hadn’t met with Trump.
“Chris Ruddy speaks for himself,” Spicer said.
--And today, the Senate Intelligence Committee will once again take center stage, when Attorney General Jeff Sessions testifies in open session about his contacts last year with the Russian ambassador to the United States and his role in the firing of former FBI director James Comey, among other things.
Here, from yesterday's Daily 202, is a rundown of 40 tough questions that Sessions could face.
- Treasury Secretary Steven Mnuchin testifies before the Senate Budget Committee on the 2018 fiscal year budget.
- The Senate Committee on Banking, Housing and Urban Affairs's executive session scheduled for today has been postponed. They will schedule another session to vote on Kevin Allen Hassett to be Chairman of the Council of Economic Advisers Pamela Hughes Patenaude to be Deputy Secretary of Housing and Urban Development.
- The Peterson Institute will host a conference on "A Positive NAFTA Renegotiation.”
- First daughter Ivanka Trump and Labor Secretary Alexander Acosta are set to travel to Wisconsin with the president on Tuesday to promote the administration’s goal to expand apprenticeships and opportunities for students to gain skills-based education.
- The House Appropriations’ Subcommittee on State, Foreign Operations and Related Programs will hold a hearing on Wednesday with Mnuchin.
- Rep. Blaine Luetkemeyer (R-Mo.) will speak at a Financial Services Roundtable event on Thursday.
Vice President Pence is scheduled to give the keynote address at the conference of Prosperity and Security in Central America. Pence will speak in Miami on Thursday.
Mnuchin says President Trump's "administration will continue to use sanctions" against foreign adversaries:
Labor Secretary Alex Acosta touts the administration’s plan to expand apprenticeship programs:
Watch President Trump tease at a meeting with Cabinet members that his new apprenticeship program will reduce unemployment: