On February 3, 2017, President Donald Trump issued Executive Order 13772, which identified seven Core Principles by which his administration would regulate the U.S. financial system. The Executive Order also directed the U.S. Department of the Treasury to generate reports to identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other government policies that inhibit federal regulation of the U.S. financial system in a manner consistent with those Core Principles.

On June 12, 2017, the Treasury released its first in a series of reports to President Trump in response to the Executive Order. This first report covered and discussed the depository system – consisting of banks, savings associations, and credit unions of all sizes, types, and regulatory charters. The Treasury consulted with a wide variety of firms, groups, experts, academics, and agencies to attempt to gather the widest range of information and perspectives to form its opinions and ultimate recommendations.

The report serves two basic functions: (1) to identify issues and problems with current banking regulations, and (2) to provide recommendations consistent with Trump’s Core Principles that seek to correct the current problems. The Treasury emphasized that realigning banking regulations in ways consistent with the identified Core Principles would help break America’s cycle of low economic growth. Recommendations for regulatory reform in the banking sector include:

  • Improving regulatory efficiency and effectiveness by critically evaluating mandates and regulatory fragmentation, overlap, and duplication across regulatory agencies;
  • Aligning the financial system to help support the U.S. economy;
  • Reducing regulatory burden by decreasing unnecessary complexity;
  • Tailoring the regulatory approach based on size and complexity of regulated firms and requiring greater regulatory cooperation and coordination among financial regulators; and
  • Aligning regulations to support market liquidity, investment, and lending in the U.S. economy.

Importantly, the recommendations consist of several common themes. First, there is a need for enhanced policy coordination among federal financial regulatory agencies. Second, supervisory and enforcement policies and practices should be better coordinated for the purposes of promoting both safety and soundness, as well as financial stability. Finally, financial laws, regulations, and supervisory practices must be harmonized and modernized for consistency. A complete list of recommendations and how they fit into President Trump’s Core Principles is found at Appendix B of the report, which is available through the U.S. Department of the Treasury website.

While the Treasury report outlines a broad array of problems with current regulations, the report focuses on and repeatedly criticizes various portions of the Dodd-Frank Act, which was signed into law by President Barack Obama in 2010. One specific issue that the Treasury criticizes is Dodd-Frank’s creation of the Consumer Financial Protection Bureau (CFPB) and its effectiveness. According to the report, “The CFPB was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to regulatory abuses and excesses.” The report goes on to emphasize that the CFPB’s overly burdensome enforcement and rulemaking has placed undue compliance burdens on institutions, limited innovation, and hindered consumer choice and access to credit. The report is especially critical of the CFPB’s focus on its own discretion and autonomy – stating that the CFPB has repeatedly made decisions that maximize its own discretion, rather than creating a stable regulatory environment. In response to this harsh characterization and evaluation of the CFPB, the report provides two important goals to help improve the Bureau: (1) adopting structural reforms to make the CFPB more accountable to the president, Congress, and the American people, and (2) ensuring that regulated entities have certainty regarding CFPB interpretations of the law before subjecting them to enforcement actions. These reforms will help the CFPB perform the functions that it was originally created to perform, as well as promote the overarching Core Principles provided by President Trump.

This Treasury report is the first of several reports that will be issued to President Trump. Ultimately, these reports will compile a vast number of reform recommendations. However, it will be up to Congress and other governmental agencies to take these recommendations and turn them into active laws and policies. Until then, these recommendations only provide a glimpse of potential actions that, if enacted, may drastically alter the U.S. financial system.