This article originally appeared as an Alert on, and is republished here with permission.

Pursuant to Executive Order 13772, issued February 3, 2017, the Department of Treasury has issued a report, A Financial System that Creates Economic Opportunities for Banks and Credit Unions (the "Report"), which sets forth the Trump Administration's plan to implement core principles to regulate the United States Financial Services Systems. The goal of these reform proposals is to promote individual decision-making regarding investments, to ensure efficiency and accountability in the operation of each administrative agency, and to provide competition and growth for the American economy. 

This report discusses potential reforms to the depository system, which covers banks, savings associations, and credit unions of all sizes, types and regulatory charters. Subsequent reports will discuss capital markets reform, asset management, insurance and housing reform. 

Some of the highlighted proposals are as follows: 

1)      Addressing the U.S. Regulatory Structure

  • Reduce fragmentation of administrative work; promote cooperation and clear jurisdiction for each agency.
  • Expand the authority of the Financial Stability Oversight Council (FSOC) (appointment of a lead regulator when multiple agencies have different interpretations of the law).
  • Improve the effectiveness and accountability of the Office of Financial Research. 

2)      Refining Capital, Liquidity and Leverage Standards

  • Raise the threshold of the Dodd-Frank stress test to $50 billion; eliminate the mid-year test; provide more independency for the banking institutions.
  • Elimination of the Comprehensive Capital Analysis and Review (CCAR) qualitative assessment as non-transparent.
  • Standardize processes for risk-weighting assets to simplify the capital regime.
  • Amendment of the Liquidity Coverage Ratio (LCR) to apply only to international active banks. 

3)     Providing Credit to Fund Consumers and Businesses to Stimulate Economic Growth

  • Recalibrate capital requirements that place an undue burden on individual loan-asset classes for mid-sized and community financial institutions.
  • Restructuring of the Consumer Financial Protection Bureau (CFPB) regarding its regulatory responsibilities and accountability: 
    1. Its director should be removable by the president at will or, in the alternative, restructure the CFPB as an independent multi-member commission.
    2. Fund the CFPB through the annual appropriation process.
    3. CFPB should inform all regulated entities of its interpretation of the law before subjecting them to its regulations. 

4)      Improving Market Liquidity

  • Considerations to adjust the Supplementary Leverage Ratio (SLR) and enhanced SLR (eSLR). Provide exceptions for cash on deposit with central banks, U.S. treasury securities and initial margin for centrally cleared derivatives from entering the denominator of total exposure.
  • Significant amendment of the Volcker Rule to make it simpler and decrease unnecessary burdens. Banks with less than $10 billion in assets should not be subject to the rule. 

5)      Allowing Community Banks and Credit Unions to Thrive

  • Simplification of the regulatory regime for these institutions by exempting them from the U.S Basel III risk-based capital regime and, if required, from Dodd Frank's Collins Amendment.
  • Change the CFPB's ATR/QM rule and increase the total asset threshold for making small creditor QM Loans from $2 billion to a threshold between $5 and $10 billion.
  • For federally insured credit unions, raise the scope of application for stress-testing requirements to $50 billion in assets.
  • For credit unions, repeal of the requirement to hold more than $100 million in assets to satisfy a risk-weighted capital framework. Introduce a simple leverage test. 

6)      Improving the Regulatory Engagement Model

  • The Board of Directors of each banking institution must have clear roles and responsibilities along with accountability. Non-accountability was one of the primary reasons of the financial crisis of 2008.
  • Clear distinction between Board and management/no "one size fits all" strategy.
  • Modified reform of the rules of regulatory coordination among administrative agencies. 

7)      Enhancing Use of Regulatory Cost-Benefit Analysis

  • The Dodd-Frank Act has created numerous administrative agencies to oversee its application, which do not coordinate. Thus, the cost of following the Dodd-Frank Act has increased, especially for mid-size banking institutions.
  • Impose a uniform and consistent method that all administrative agencies will use to determine the cost and the benefits of all proposed regulations, which are economically significant.
  • Promote cooperation among the agencies, along with public accountability.  

It is unclear how the Administration will make good on these and other proposals. Many of the suggested recommendations will require legislative changes to Dodd Frank. One wild card of course will be whether the independent agencies will adopt these proposals on their own. Organizations that are subject to regulation by these various agencies should consider these proposals as opportunities for outreach and should be putting together wish lists and talking points for future engagement. Clark Hill will continue to monitor the development of these proposals.


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