On June 12, 2017, the U.S. Treasury released its first report to President Trump in response to Executive Order 13772, on the Administration’s Core Principles for Regulating the U.S. Financial System. Treasury’s report – the first in what will be a series of similar reports focused on other areas of the financial system – identifies laws, regulations, guidance, and other policies at the federal level which it believes in some way inhibit the regulation of the U.S. depository system, which includes banks, savings associations, and credit unions.
From a high level, with respect to banking sector reform, Treasury’s report recommends:
- Improving regulatory efficiency and effectiveness by critically evaluating mandates and regulatory fragmentation, overlap, and duplication across regulatory agencies
- Aligning the financial system to help support the U.S. economy
- Reducing regulatory burden by decreasing unnecessary complexity
- Tailoring the regulatory approach based on size and complexity of regulated firms and requiring greater regulatory cooperation and coordination among financial regulators
- Aligning regulations to support market liquidity, investment, and lending in the U.S. economy
More specifically, the report contains recommendations related to capital and liquidity, relief for community financial institutions, regulatory engagement, living wills for certain financial institutions, rules for foreign banking organizations, the Volcker rule, leveraged lending, small business lending, and reform of the Consumer Financial Protection Bureau (CFPB) and consumer finance regulation.
Many of Treasury’s recommendations focus on tailoring certain rules for banks in order to reduce the perceived regulatory burden, and more efficiently review banks from a safety and soundness perspective. For example, Treasury recommends adjusting the scope of certain requirements and tailoring rules related to capital and liquidity, such as stress testing under the Dodd-Frank Act, the Comprehensive Capital Analysis and Review (CCAR), the Liquidity Coverage Ratio (LCR), and the Single-Counterparty Credit Limit (SCCL). In the community bank sector, Treasury recommends simplifying the capital regime and expanding the coverage of the Small Bank Holding Company Policy Statement to include bank holding companies up to $2 billion in assets from the current $1 billion limit.
Treasury also recommends structural and procedural reforms focused on the CFPB. One recommendation would make the director of the CFPB removable at-will by the U.S. president – currently the CFPB director is only removable for cause. Treasury also recommends that the CFPB be funded through the Congressional appropriations process so that Congress will have greater oversight over the agency.
Finally, Treasury recommends that a number of regulations and guidance documents be adjusted or even re-issued in a way that allows for public notice and comment before becoming effective. That would include guidance on leveraged lending and regulations associated with the residential mortgage banking industry, including the ability to repay rules, Know Before You Owe rules, mortgage servicing rules, among others.
About Schiff Hardin’s Financial Institutions Team
Schiff Hardin has a dedicated team of financial institution transactional, regulatory, and litigation attorneys with significant experience handling various aspects of bank and non-bank financial institution matters. Our attorneys regularly advise financial institutions on corporate matters, mergers and acquisitions, regulatory compliance, enforcement matters, and litigation throughout the U.S.
*Paul Newendyke is a Summer Associate in Schiff Hardin's Chicago Office and a law student at Indiana University Maurer School of Law, working under the supervision of Joseph E. Silvia.