Treasury releases first proposal to roll back Dodd-Frank

The Treasury Department proposed on Monday several changes to Obama-era banking regulations, the first specifics on how President Trump would try to “dismantle” the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

Treasury’s proposal includes dozens of recommendations ranging from legislative fixes to be adapted by Congress to ways regulators could loosen rules on banks with the hopes of boosting economic growth. 

“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,” said Treasury Secretary Steven Mnuchin. “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.” 

{mosads}Trump had long promised to “dismantle” Dodd-Frank without providing details on what he’d like to change. The Monday report contains the first proposals offered by the administration on how to reshape financial regulation.

The recommendations came in a report released by the Treasury Department on Monday evening, the first of four analyses mandated by orders Trump signed on April 21. The memoranda directed Mnuchin to review Dodd-Frank for changes that would boost economic growth.

Much of Monday’s report focuses on the frequency, scope and administration of federal bank stability exams. Under the Treasury’s proposal, banks with less than $50 billion in assets would be exempt from federal stress tests. That limit is $10 billion under Dodd-Frank. Mnuchin wrote that regulators would consider other potential measures of stability beyond those outlined in Dodd-Frank and stop making “unrealistically conservative” analyses about what banks could do under financial stress. 

The report also recommends opening up the Federal Reserve’s role in stress-testing banks to public input and congressional review.

Mnuchin also proposed several changes to the “living wills” process, in which major banks are forced to submit plans to regulators on how they’d weather a financial crisis. The report recommends raising the living will compliance threshold from $50 billion in assets but doesn’t suggest a figure — the current focus of a heated debate in Congress.

The Federal Deposit Insurance Corporation would be removed from the living will process, which would only happen every two years under Mnuchin’s plan, not annually as under current law.

Mnuchin’s report also proposes major curbs to the power of the Consumer Financial Protection Bureau (CFPB), an agency established by Dodd-Frank to police predatory lending. The agency’s sole director would be fireable at will by the president, though Mnuchin also suggested installing a bipartisan commission to lead the CFPB. Its budget would be controlled by Congress, it would no longer be able to supervise banks, and the agency would face new, strict limits on how and when it could penalize financial services companies.

The report’s release comes less than a week after the House passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act, a GOP effort to strip much of Dodd-Frank. The White House praised the bill, and Monday’s report shares some common proposals, like exempting banks with high cash reserves from Dodd-Frank.

In other cases the report is more modest. While Mnuchin suggested limiting the CFPB’s authority to crack down on “unfair, abusive and deceptive practices,” the CHOICE Act eliminates it. The CHOICE Act also scraps the “Volcker Rule,” a ban on banks investing company resources, while Mnuchin only suggests loosening it.

Mnuchin’s report helps establish a baseline for ongoing GOP discussions about financial deregulation. The CHOICE Act is unlikely to pass the Senate, where the Republican majority is too slim to overcome a Democratic filibuster.

Lawmakers on the Senate Banking Committee have also floated a bipartisan measure to relieve regulations on smaller banks, which has received measured interest from House members. 

Trump administration officials called on the House to pass the CHOICE Act, while urging the Senate to work on changes that could clear the chamber.