Monday, January 23, 2017

Treasury Nominee Wants Regulation with Limits, Not Repeal

Author: David Schwartz J.D. CPA

For the most part, Treasury Nominee Steven Mnuchin's five-hour confirmation hearing on January 19, 2017 focused on responding probing questions about his past associations and financial reporting oversights. Amid the sparring, however, Mnuchin was able to reveal a bit about his plans for Dodd-Frank, the Volcker Rule, and his thoughts on the future of financial regulation. Most notably, the wholesale repeal of Dodd-Frank promised during the election campaign does not appear to be on his agenda.  While he believes some aspects of Dodd-Frank regulations have gone too far and are stifling growth, Mr. Mnuchin said that rather than rolling back regulations, he favored placing limits on the existing framework to make it fairer, particularly to smaller financial firms. 


Overall, Mnuchin said his goal with regard to financial regulation was to "work diligently to limit regulations, lower taxes on hardworking Americans and small businesses, and get the engine of economic growth firing on all cylinders once again.” Mr. Mnuchin was not questioned deeply on how he would achieve his goal, but did shed some light on certain aspects of the approach he would take in limiting regulation.  


Community Banks.   According to Mr. Mnuchin, “regulation is killing community banks.” He said he would like to place limits on the  the Financial Stability Oversight Council (FSOC) where its oversight might hurt smaller and community banks.


Volcker Rule. Mr. Mnuchin testified that he supports the goals of the Volcker Rule. But the rule is cumbersome, unclear, and difficult for banks to implement. “I support the Volcker Rule, but there needs to be proper definition around the Volcker Rule so that banks can understand exactly what they can do and what they can’t do. . .The concept for proprietary trading doesn’t fit banks that are FDIC insured.” 


Mr. Mnuchin said that he wants to improve Volcker Rule so that it is easier for banks to comply with and dealing with the Volker Rule’s unintended effect on liquidity (citing a recent Fed study on how the Volcker Rule is harming bond liquidity).


Glass-Steagall 2.0.  During the campaign, President Trump floated the idea of bringing back Glass-Steagall, an idea that was ultimately added as a plank in the Republican platform. Mnuchin testified that he does "not support going back to Glass-Steagall as is,” because doing so “would have very big implications to the liquidity and capital markets and banks being able to complete necessary lending.” Rather, Mnuchin says he supports a “21st Century Glass-Steagall,” perhaps through redefining the Volcker Rule.


CFPB.  Mr. Mnuchin testified that he does not favor dismantling the Consumer Financial Protection Bureau, but would merely change the way the agency is funded to increase Congressional oversight.