Treasury’s About-Face Means to Teach New Dance to Regulatory State
Less than two weeks after being unmasked as Washington’s biggest producer of regulations, the U.S. Department of the Treasury issued a report calling for lessening regulation.
If that’s not surprising enough, consider that the businessman-president and his Wall Street secretary of the Treasury see a way to make the regulatory state dance to the benefit of the American people. If it succeeds, it will deserve treatment as a Broadway play.
The 149-page document titled “A Financial System That Creates Economic Opportunities” envisions a better economic future that leaves things like “too big to fail” in the rearview mirror. The Treasury’s about-face is being hitched to congressional efforts to alter Dodd-Frank, the law that has done so much to lessen competition in the banking sector. Accordingly, the efforts are all welcome.
“Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal to create opportunities for all Americans to benefit from a stronger economy,” Treasury Secretary Steven Mnuchin said in comments released with the report on June 12. “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.”
That’s quite a change for a department that was a waterfall of regulations last year under President Obama and his Treasury secretary, Jack Lew. According to the Competitive Enterprise Institute’s annual regulation survey known as “Ten Thousand Commandments,” the Treasury issued 469 new rules last year, 65 percent more than the No. 2 issuer, the Department of the Interior (285). The survey was released May 31.
Trump’s campaign rhetoric set the table for Executive Order 13772, which calls for the Treasury secretary to report on the administration’s regulatory “core principles,” including empowering citizens and boosting American competitiveness.
Amid a bout of raising interest rates and identifying a strategy for reducing the Fed’s $4.5 trillion balance sheet, Federal Reserve Chair Janet Yellen declared her support for the new administration’s ideas.
“Treasury has set out a list of objectives for regulation that I’m sympathetic to and endorse,” she said on June 14, according to MarketWatch.com. “I think looking for ways to reduce the regulatory burden, when it can be done without sacrificing safety and soundness, or creating systemic risk, that is something that all regulators should want to do.”
Reform efforts might stall if Trump and Mnuchin, known for New York–centered business accomplishments, become prisoners of the regulatory state. This is a very real possibility. The Treasury’s reform program may encounter problems of regulatory capture, which could include agencies doing the bidding of special interests as well as businesspeople-turned-regulators being frustrated by bureaucratic protocols.
The Treasury report’s major conclusions include the needs for “better tailored, more efficient, and effective” regulations and congressional review of banking regulators to improve accountability. Congress took a major step recently, the secretary noted.
“We congratulate the House on passing the Financial Choice Act,” he said. “The report we are releasing today focuses on solutions the Executive Branch can execute through regulatory changes and executive actions. We look forward to working on a parallel track with Congress to provide swift relief, particularly to community banks.”
Smaller banks, often called community banks, have been saddled with a relatively heavier regulatory load because of the Dodd-Frank law, passed on the heels of the 2008 financial crisis.
The Consumer Financial Protection Bureau, a key creature of Dodd-Frank, is the subject of more than 10 changes recommended in the report, including stripping the office of its authority to examine financial firms on a continuing basis and no longer being able to set its own budget.
Another creature of Dodd-Frank, the Financial Stability Oversight Council, should be given expanded powers by Congress to appoint a lead regulator on any issue where various agencies have jurisdiction, the Treasury recommends.
The Treasury also endorses granting regulatory relief to well-capitalized banks, something provided for in the Financial Choice Act.
Consolidating regulators with similar functions and better defining regulatory mandates are some actions Congress could take, the report states.
The Volcker Rule, a tool named after retired Fed Chairman Paul Volcker that limits certain kinds of securities trading by banks, should be relaxed for small banks through congressional action, the Treasury says. The Financial Choice Act would eliminate the rule entirely.
Some changes to bank rules face hurdles to approval by the boards of the Federal Reserve and the Federal Deposit Insurance Corp.
Capital, liquidity, and leverage rules can be simplified to boost the flow of credit. Easier credit flows will stimulate the economy, the Treasury report says.
The report is billed as the first in a series studying regulatory changes. Others are to deal with subjects such as markets, liquidity, central clearing, financial products, asset management, insurance, and innovation.
The document seems to signal a new dawn in Washington. To prevent it from being a false one, Trump, Mnuchin, and Congress will have to fashion new dances with bureaucrats and not go home with any of them.
