Treasury finally releases reform plan, but Senate snafu awaits

Monday afternoon, the Treasury Department released its long-awaited proposals to reform the regulation of depository institutions, i.e., banks and credit unions. 

As the report notes, subsequent Treasury reports will address regulatory reform for capital markets, the asset management and insurance industries, as well as non-bank financial institutions, financial technology and financial innovation.

The proposals in Monday’s report reflect the core principles for financial regulation that the Trump administration articulated in an executive order it issued on Feb. 3. I discussed those principles previously in The Hill.  

As expected, the report has a strong deregulation thrust, but it does not gut the Dodd-Frank Act of 2010. It definitely is not a “repeal and replace” proposal.

{mosads}The timing of this report is interesting as it follows House passage of the Financial CHOICE Act by just four days.  Hence, the financial regulatory reform ball has been tossed to the Senate, with the Senate now charged with melding provisions of the CHOICE Act with the recommendations of the Treasury report as well as reform proposals initiating in the Senate.

Given the narrow Republican edge on the Senate Banking Committee (12 to 11) and in the Senate (52 to 48), any regulatory reform bill emerging from the Senate will differ materially in at least several regards from both the CHOICE Act and the Treasury Department recommendations. 

This will be especially true for those provisions affecting any aspect of the Consumer Financial Protection Bureau (CFPB). Other legislative provisions, though, such as reducing the regulatory burden for community banks, should be more closely aligned with the report’s recommendations. 

Because of the narrow party split in the Senate, financial regulatory reform will not move quickly. That slow pace is understandable given, according to Idaho’s Spokesman-Review newspaper, the desire of Chairman Mike Crapo (R-Idaho), for “bipartisan support for legislation.”

If — and this is the big if — the Senate does pass financial reform legislation in this Congress, it will differ materially in many regards from the CHOICE Act. That will make for a contentious House-Senate conference to reconcile differences between the bills. How many of the recommendations in the Treasury report will be reflected in the conference report is an open question.

The Trump administration should be able to move faster to accomplish those recommendations that can be implemented though regulatory action, specifically revising regulations and regulatory guidance within the context of existing law.  However, to do so, the administration needs to move faster in filling existing and upcoming vacancies in the financial regulatory agencies. 

The president plans to nominate banker Joseph Otting as comptroller of the currency and reportedly will soon nominate a vice chairman of supervision to the Federal Reserve’s Board of Governors. In November, the president will be able to nominate a new chairman of the Federal Deposit Insurance Corporation (FDIC). In July 2018, the president will be able to appoint a new director of the CFPB. These appointees will provide crucial leadership on the regulatory front.

Filling other vacancies on the Fed and FDIC boards will provide additional opportunities for the administration to put in place supporters of its financial regulatory philosophy, as articulated in the Treasury report.

Treasury Secretary Steven Mnuchin also can play a key role in advancing the administration’s regulatory objectives in the financial arena through his chairmanship of the Financial Stability Oversight Council.

Given the narrow advantage Republicans have in the Senate, the policy objectives spelled out in the Treasury report will not be quickly or fully enacted legislatively, but the report leaves no doubt as to what the administration seeks to achieve.  Time will tell how effectively and quickly the Trump administration and congressional Republicans can achieve those goals.

Bert Ely is the principal of Ely & Company, Inc., where he monitors conditions in the banking and thrift industries, monetary policy, the payments system and the growing federalization of credit risk.

The views expressed by contributors are their own and not the views of The Hill.