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Treasury Report on FinReg Offers Constructive Post-Crisis Steps

Tuesday, June 13, 2017

Washington, D.C.– The Treasury Department’s report this week on banks and credit unions—the first of a much anticipated series of financial regulatory reform reports—provides practical and useful solutions and is a positive contribution to the debate on how to address post-crisis financial reform. It also incorporates several recommendations made by the Bipartisan Policy Center, which was among the groups consulted by Treasury.

The Treasury report is part of a review on how well the U.S. financial regulatory system is meeting seven core principles set out by President Trump in an executive order issued in February. This report makes good suggestions on the need to streamline the fragmented U.S. financial regulatory structure, including by agency consolidation, and recommending a consolidated examination force to better coordinate among multiple supervisory agencies.

As Congress considers how best to address financial regulatory reform, the Treasury report is a constructive step in the right direction.

The report is also correct to prioritize tailoring regulatory burdens based on size and complexity of financial organizations, and ensuring that new regulatory requirements are well-calibrated—including a review of the Supplementary Leverage Ratio—and by adjusting and adding flexibility to new Dodd Frank regulatory thresholds. BPC has recommended all of these approaches in past reports. We also agree that Congress should “undertake holistic analysis of the cumulative impact of the regulatory environment,” much as the European Union has done in recent years.

The report’s primary weakness is its recommendations to reduce the independence of some financial regulatory agencies. Rather than diminishing the role of the Office of Financial Research, Congress should instead enhance the independence of the OFR to allow it to serve the critical role of warning policymakers of potential sources of systemic risk, insulated from political pressures. Similarly, the Consumer Financial Protection Bureau can be made more accountable through a separate inspector general, rather than the report’s recommendation to fund the CFPB through appropriations, which would threaten the agency’s independence and could lead to a dramatic change in the agency’s role and effectiveness following each election cycle.

“As Congress considers how best to address financial regulatory reform, the Treasury report is a constructive step in the right direction,” G. William Hoagland, senior vice president at BPC, said. “Congress should give strong consideration to recommendations for streamlining the regulatory structure, tailoring regulation, and ensuring that new regulatory requirements are well-calibrated, while avoiding measures that weaken the independence of financial regulatory agencies.”

KEYWORDS: CONSUMER FINANCIAL PROTECTION BUREAU (CFPB), BILL HOAGLAND, DEPARTMENT OF TREASURY, OFFICE OF FINANCIAL RESEARCH, 115TH CONGRESS, PRESIDENT DONALD TRUMP, DODD FRANK