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U.S. Treasury Department Proposes Broad Reforms for Financial Sector

The U.S. Treasury Department released a report on the U.S. financial system and recommended major regulatory reforms based on the core principles set forth in a February executive order from President Donald J. Trump.  The Wall Street Journal reported that the recommendations, which may involve a years-long review of U.S. financial regulations, seek to roll back many of the restrictions established in the wake of 2008 financial crisis under former President Barack Obama. The WSJ also reported that the recommendations were lauded by the financial sector and Republican lawmakers but criticized by consumer groups. The recommendations are broad in scope and target small and large banks, credit unions, consumer lending, and financial regulatory agencies. Some of the most watched recommendations include: increased authority for the FSOC; changes in the CFPB’s structure and limits on its powers; and review of the capital and liquidity rules affecting banks.  Some notable recommendations from the report included:

  • Banking Organizations’ Board of Directors: The report states that duties imposed on bank boards are too voluminous, lack appropriate tailoring, and undermine the important distinction between the role of management and that of boards. The report recommends inter-agency review of the collective requirements imposed on boards in order to streamline expectations and restore balance in the relationship between regulators, boards, and bank management.
  • Cost-Benefit Analysis Requirements on Regulators:  The report acknowledges that Congress has already imposed cost-benefit analysis requirements on independent financial regulatory agencies – including the CFTC and SEC –  and recommends that the agencies more fully apply Office of Management and Budget guidance on cost-benefit analysis and adopt a more consistent, comprehensive, and uniform approach to cost-benefit analysis to improve the transparency of the rulemaking process and make the agencies more accountable to Congress and to the public.
  • Volcker Rule: The report recommends reducing the scope, applicability and complexity of the Volcker Rule and allowing banks to more easily to hedge the risks of their activities and conduct market-making activities.
  • Cyber Security:  The report recommends that federal and state financial regulatory agencies establish processes for coordinating regulatory tools and examinations across sub-sectors and that financial regulatory agencies work to harmonize regulations, interpretations and implementation of specific rules and guidance around cybersecurity.