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The Year of Regulatory Relief

Part II: Executive orders and departing officials portend change.

By Bill Poquette

Last month in this space I wrote about encouraging moves by the new administration in Washington toward easing some of the more onerous aspects of bank regulation. Just a few days after I signed off on that column, executive orders issued by President Donald Trump fleshed out my February story line. And there was more.

On Jan. 30, it was decreed that agencies cut two existing regulations for every new rule introduced. Then, on Feb. 3, another executive order hit bankers’ sweet spot, mandating a thorough review of financial regulations that is expected to foster major changes in the Dodd-Frank Act.

Joseph Lynyak III, a partner at the international law firm Dorsey & Whitney and an expert on Dodd-Frank, the Volcker Rule, regulatory reform and the Consumer Financial Protection Bureau, interpreted the president’s directive as follows:

“The president’s executive order, ‘Core Principles for Regulating the United States Financial System,’ establishes a set of guidelines by which the administration will judge the advisability of implementing financial regulatory changes not needing congressional approval,” Lynyak said. “Clearly this will include modifications to Dodd-Frank Act rules that have been repeatedly criticized by the industry as being burdensome, costly and ineffective.”

Also among the core principles enumerated in the document were these: prevent taxpayer-funded bailouts; foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry; and enable American companies to be competitive with foreign firms in domestic and foreign markets.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, was pleased with the executive order, saying it “closely mirrors provisions that are found in the Financial CHOICE Act to end Wall Street bailouts, end ‘too big to fail’ and end top-down regulations that make it harder for our economy to grow and for hard working Americans to achieve financial independence.”

As the beat went on during February, it seemed clear that both community banks and Wall Street may see potential benefits in these rollback efforts. Dodd-Frank has hampered both groups, with cumbersome mortgage lending rules for community banks, for example, and beefed up capital and trading restrictions for Wall Street.

There is no question, of course, that contemplated reforms would help community banks without threatening their safety and soundness.  And who would argue with the goals of ending too-big-to-fail and taxpayer bailouts?  But also implicit in the Feb. 3 executive order and the Financial CHOICE Act is the easing of some restrictions on Wall Street banks, ostensibly “to be more competitive with foreign firms.”

Many powerful forces are at play in all of this, which clouds possible outcomes. Democrats will fight efforts to repeal Dodd-Frank, while energized Republicans controlling both Congress and the White House are confident they will prevail in the ongoing battle.

In another of last month’s key developments, Daniel Tarullo announced his resignation from the FDIC Board “on or around” April 5. The Wall Street Journal described him as “the government’s most influential overseer of the American banking system.” Tarullo’s farewell — leaving the board with four empty seats — comes on top of the impending departures of the FDIC chairman and the Comptroller of the Currency.

With all of these vacancies to be filled, plus the congressional divide, clarity on the path to deregulation remains elusive.

 

Bill Poquette is editor-in-chief of BankNews.

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