The Trump administration has released its most detailed report yet on its plans to deregulate Wall Street.
The 147-page report, containing recommendations by the Treasury Department, calls for rolling back many provisions of the landmark Dodd-Frank Act, which was passed in 2010 in the wake of the financial crisis.
The Consumer Financial Protection Bureau is an enforcement agency created by Dodd-Frank. It has handled more than 1 million complaints since its inception in 2011, and says its actions have resulted in about $12 billion in relief for consumers.
The report calls for limiting the CFPB's independence by authorizing the president to fire the CFPB director at will. The director can now be fired only for cause. It also recommends that a multi-member commission or board possibly lead the agency. Changing the leadership structure is hotly debated because the director can now independently run the agency and be aggressive in cracking down on scammers without worrying about political outcomes.
The CFPB would also be funded through Congressional appropriations, rather than the Federal Reserve, which is independent. Having to depend on Congress would make the agency be more beholden to the whims of lawmakers.
*Relaxing financial standards
Banks with assets of $50 billion or more are held to higher capital standards, including how they manage risk and maintain sufficient capital. The report recommends tailoring these standards based on how risky banks' actions are. But strict standards are considered important by Dodd-Frank proponents because they ensure that banks have enough capital to run and lend during a recession.
Banks also are required to undergo a yearly “stress test” to determine their financial soundness. Treasury recommends narrowing the number of banks that undergo the test.
Treasury also calls for waiving test requirements for large banks in certain situations.
The Fed conducts its own review of large banks every year to determine if they have sufficient capital. The plan recommends the review be heldevery two years.
Large banks also prepare “a living will,” a plan on how they would liquidate and shut themselves down in a global crisis. Treasury recommends that the living will be drafted every two years instead of the current one. Dodd-Frank proponents say these living wills force banks to self-regulate.
Revising rules for small banks
The report recommends relaxing mortgage lending rules for banks with total assets less than $10 billion. Among the prohibited items: “interest-only” periods, "balloon payments” required at the end of the loan period, loan terms longer than 30 years, and excessive upfront points and fees. Banking lobbyists say relaxing these rules would spur more lending. The rules' proponents say the recommendation could encourage riskier practices.
The plan would also eliminate “the Volcker Rule” for banks with assets of $10 billion or less. The rule was put in place by regulators who wanted to curb banks' speculative trading activities that could eat into assets and generate high levels of debt.
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