trending Market Intelligence /marketintelligence/en/news-insights/trending/LXOjxIA5kELNHqAGwY5thg2 content esgSubNav
In This List

Treasury emphasizes tailoring over repeal in financial regulation reform

Case Study

A Green Lender Adopts a Robust Approach for Assessing Project Finance Credit Risks


MediaTalk | Season 2
Ep.1: Broadcast's Big Year


Global M&A by the Numbers Q4 2023


Investment Banking Essentials: February 21

Treasury emphasizes tailoring over repeal in financial regulation reform

The Treasury Department released a 147-page report, commissioned by President Donald Trump in a Feb. 5 executive order, emphasizing the need to realign the regulatory system to prioritize efficiency and tailored rule-making.

The report notably defended the Volcker rule, which limits proprietary trading. It does not recommend repealing the rule, but an exemption for banks with $10 billion or less in total consolidated assets was supported. The report also encouraged regulators to re-evaluate elements such as the capital surcharge for global systemically important banks, or G-SIBs; the minimum debt ratio; the net stable funding ratio; and the enhanced supplementary leverage ratio.

The report, which focused on bank regulation, is the first of a series from the Treasury. Future reports are expected to address capital markets, finance products and fintech. Acting Comptroller of the Currency Keith Noreika said in a statement that the OCC would provide further recommendations for reforms this month.

Safety and soundness

The report recommended tailoring regulations to banks of different sizes, with the hopes of providing some relief to small and community banks.

* Create an "off-ramp" for "well-capitalized" banks from nearly all aspects of Dodd-Frank's enhanced prudential requirements.

* Eliminate midyear Dodd-Frank Act stress test cycle, raise the threshold for participation from $10 billion to $50 billion and reduce the number of supervisory scenarios from three to two.

* Adjust Comprehensive Capital Analysis and Review cycle to two years, with a provision for an off-cycle submission if a revised capital plan is required due to financial distress or "extraordinary" events.

* Adjust living will cycle to two years, with participation limited to banks that meet the revised threshold for enhanced prudential standards.

* Limit the scope of the U.S. liquidity coverage ratio to G-SIBs and apply a less stringent standard to internationally active banks that are not G-SIBs.

* Only apply the single-counterparty credit limit to banks subject to the revised threshold for enhanced prudential standards.

* Exempt community banks from Basel III standards, while retaining common equity Tier 1 capital rules.

* Adjust the definition of a small bank from $1 billion to $2 billion to cover several hundred more BHCs.

* Only subject credit unions with total assets above $10 billion to National Credit Union Administration risk-based capital requirements.


The Treasury also suggested changes to rules on lending activity, including the controversial qualified mortgage rule, or QM.

* Reassess the frequency, effectiveness and transparency of the Community Reinvestment Act.

* Ease the Consumer Financial Protection Bureau's definition of ability-to-repay and QM to expand access to mortgages. Increase the maximum asset threshold for making small-creditor QM loans from $2 billion to somewhere between $5 billion and $10 billion.

* Delay 2018 implementation of new Home Mortgage Disclosure Act requirements. Place a moratorium on additional rule making on mortgage servicing. Clarify rules on "Know Before You Owe" disclosures and Loan Originator Compensation.

* Repeal section 1071 of Dodd-Frank, which recommends small-business loan data collection.

* Review guidance on leveraged lending, commercial real estate lending and risk-weight treatment of private level mortgage-backed securities.

Changes at regulators

A number of recommendations within the report urged regulatory consolidation and coordination, in addition to a proposal to restructure the "unaccountable" CFPB.

* Repeal the CFPB's supervisory authority, and subject the agency to annual appropriations.

* Make the CFPB director removable at-will by the president, or install an independent multimember commission or board.

* Give the Financial Stability Oversight Council the authority to designate a lead regulator in regulatory issues.

* Consolidate the Office of Financial Research into a functional part of the U.S. Treasury.

* Amend section 165(d) of Dodd-Frank to remove the Federal Deposit Insurance Corp. from the living wills process.