“Earlier this year the Treasury Department invited AAF to participate in a roundtable discussion with other think tanks and academics as it researched and wrote its report on banks and credit unions, pursuant to Executive Order 13772. At least three other Treasury reports are due for publication this fall. For the next report, in lieu of further roundtables, however, interested groups and individuals are invited to submit written comments on FSOC-specific matters. Below are written comments from AAF President Douglas-Holtz-Eakin and AAF Director of Financial Services Policy Meghan Milloy to Treasury staff regarding FSOC and recommendations for reform.”

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When it comes to America’s infrastructure, however much we spend never appears to be enough.

On one level at least, that’s understandable. If you’ve ever been frustrated by flight delays, or if you’ve ever taken your life in your hands on Interstate 95 — the East Coast ‘dodge-em’ track judged to be among America’s most dangerous highways — you’ll agree with those who want to boost spending significantly.

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WASHINGTON — A group of 10 Republican senators are calling on Treasury Secretary Steven Mnuchin to drop the government’s appeal of a ruling last year that rejected the insurance giant MetLife’s designation as a systemically risky firm and to dedesignate the only other two nonbanks labeled as a potential threat to the economy.

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Donald Trump meant many things to many voters, but for some, he was the deregulation candidate. He could validate that reputation if he acts soon on a regulatory dispute involving insurance giant MetLife. But he can’t wait too long.

In 2014, the Obama administration’s Financial Stability Oversight Council branded MetLife a too-big-to-fail enterprise, officially a “systemically important financial institution.” This designation placed the company under the regulatory regime of the 2010 Dodd-Frank Act, whose provisions were primarily aimed at the banking industry in an effort to decrease systemic threats to the financial markets.

MetLife challenged the label in January 2015, filing a lawsuit in the U.S. District Court for the District of Columbia. The company argued the classification was improper for a number of reasons. First, it felt that it was targeted due to its size and not the business activities it was engaged in.

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NEW YORK (Thomson Reuters Regulatory Intelligence) – A report by the Republican staff of the powerful U.S. House of Representatives Committee on Financial Services found that the federal Financial Stability Oversight Council acts inconsistently and arbitrarily in exercising its power to designate certain non-bank companies as “too big to fail.”

Based on documents requested by the committee in 2015, and testimony of Treasury Department officials, both obtained as the result of a Congressional subpoena, the report calls the federal interagency council’s analysis is inconsistent. It also accuses the council of failing to follow its own rules.

“Today’s FSOC designations are tomorrow’s taxpayer-funded bailouts. The FSOC typifies Washington’s shadow regulatory system of powerful government bureaucrats, secretive meetings, arbitrary rules and unchecked power to punish enemies and reward friends,” committee Chairman Jeb Hensarling said last year following a court decision rejecting the council’s designation of Metlife as a systemically important financial institution, or SIFI.

The staff report details the non-public analysis associated with FSOC’s processes to designate certain firms as SIFI’s, subject to greater regulatory oversight. It comes in the midst of the FSOC’s appeal of the federal district court decision on MetLife.

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House Financial Services Committee Republicans said in a report released today that the Financial Stability Oversight Council’s process for designating firms as “systemically important” was “arbitrary and inconsistent.”

Chairman Jeb Hensarling published the findings of the panel’s investigation ahead of Treasury Secretary Steven Mnuchin’s first FSOC meeting on Thursday. The Treasury secretary chairs the panel of top financial regulators. Congress created FSOC in the 2010 Dodd-Frank law.

Hensarling has proposed scrapping the council’s authority to label firms as systemically important financial institutions, a label that carries with it increased oversight by the Federal Reserve. FSOC has been fighting in court to defend its SIFI designation of MetLife, after it was overturned. Prudential Financial and American International Group remain SIFIs.

According to the report, committee staff found that FSOC did not follow its own guidance when it came to designations and “repeatedly evaluated similar aspects of different companies differently.” Committee staff said it appeared that FSOC lacked “sufficient rationale” for its designations.

“The Obama Treasury Department tried to keep Congress and the American people in the dark about how FSOC exercises its sweeping powers,” Hensarling said in a statement. “The release of this staff report brings some much-needed transparency and oversight to FSOC, and the information contained in the documents clearly demonstrates the need for the accountability reforms Republicans have proposed in the Financial CHOICE Act.”

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President Donald Trump directed the Treasury secretary Friday to report to him within four months on laws and regulations that could rein in economic growth, hamper the competitiveness of businesses or narrow Americans’ ability to make financial decisions.

In an executive order, Trump said the Treasury secretary should consult with the heads of other federal regulatory agencies to determine what laws and regulations contradict what the order called “core principles” of regulation.

Trump’s order begins a sweeping review of financial regulation, particularly the 2010 Dodd-Frank law (PL 111-203), although it never mentions that law. The president signed the order while nearby stood House Financial Services Chairman Jeb Hensarling, R-Texas, who has frequently backed legislation aimed at repealing Dodd-Frank.

“We expect to be cutting a lot out of Dodd Frank, because frankly I have so many people, friends of mine, that have nice businesses and they can’t borrow money,” Trump said in a meeting Friday with corporate executives. “They just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd Frank.”

The order directs the Treasury secretary to consult members of the Financial Stability Oversight Council, or FSOC, a panel established by Dodd-Frank and tasked with identifying risks to the financial system.

Hensarling said in a statement that the order “closely mirrors” the Dodd-Frank repeal bill he wrote and his committee approved last year.

“The president’s action shows a desire “to end Wall Street bailouts, end ‘too big to fail,’ and end top-down regulations,” Hensarling said.

The immediate effect of Trump’s order is limited, but it could result in the Treasury soon dropping its appeal of a case against MetLife, an insurance company that has been deemed too big to fail. The Treasury may also be able to identify ways to relax regulatory enforcement. But because many of the Dodd- Frank regulations were required by Congress, lawmakers would have to reverse them or regulatory agencies would have to amend them.

One of Trump’s core principles is to avoid tax-payer funded bailouts of institutions deemed too big to fail. Many congressional Republicans, however, say that Dodd-Frank has encouraged the growth of the biggest financial institutions, making them too big to allow to fail.

Among the results of the Dodd-Frank law is closer regulatory scrutiny of large financial institutions. The government is currently appealing a court ruling that removed insurer MetLife from the list of institutions that are too big to fail. That appeal looks vulnerable to Trump’s memo.
MetLife Case

Giving up on the MetLife appeal is one thing that “could happen very quickly,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. She added that Friday’s memo is otherwise more of a “statement of intent” by the president.

The Trump administration is also taking the helm of the FSOC. Steven Mnuchin, the Treasury secretary nominee, would lead that body. The Senate hasn’t yet voted on Mnuchin’s confirmation.

Rolling back the regulations mandated by the 848-page act is easier said than done. Congress would have to pass legislation to do most of the work and Senate Democrats appear to have the votes to stall or block legislation.

Dodd-Frank has led to more than 250 rules on everything from securities and futures trading to derivatives and residential mortgages. To amend many of the rules would require time-consuming processes by a cadre of independent agencies the new president does not yet control.

A new law would be required to unwind the core of the act, which includes intense regulation of the 35 banks with $50 billion or more in assets, the requirement for “living wills” on how a large, failed bank would be wound down, and the enhanced ability of the Federal Deposit Insurance Corp. to take over a failed bank.


But Trump’s action nevertheless drew praise from the financial industry.

“A sensible and careful review of Dodd-Frank and other financial regulations can and should strengthen those goals while unleashing the power of the banking industry — from small towns and communities to our nation’s financial centers — to fuel the increase in economic prosperity that we all seek,” said American Bankers Association CEO Rob Nichols. “We look forward to working in a bipartisan manner with the administration, Congress and bank regulators on policy changes that will keep banks strong and focused on providing the capital that is so essential to rebuilding our economy.”

Investment Company Institute president and CEO Paul Schott Stevens also backed Trump’s action. The ICI represents regulated investment funds.

“From the onset, [ICI] cautioned that provisions in Dodd-Frank – particularly the potential designation of regulated funds and their managers as systemically important financial institutions (SIFIs) – were inappropriate and harmful to fund investors,” Stevens said in a statement.

The Trump administration may also find parts of Dodd-Frank it wants to keep.

Mnuchin has expressed support for the act’s so-called Volcker Rule, which prohibits federally insured commercial banks from certain risky trading activity.

Republicans in Congress support the Federal Reserve’s intense scrutiny of the eight largest and most interconnected U.S. banks. There is also wide support, though, for loosening regulation on the more than 5,000 smaller U.S. banks.

Two of the major Dodd-Frank rule-writing agencies – the Securities and Exchange Commission and the Commodity Futures Trading Commission – are headed by five- member commissions that are each three members short. Once a Trump appointee gets on each body, there presumably would be a GOP majority that could begin the long process of amending an existing rule.

Troy D. Graziano, senior fellow in constitutional law at the conservative Pacific Legal Foundation, said it may be simpler for Congress to roll back Dodd-Frank under the Congressional Review Act. The CRA allows Congress to review rules submitted in the last 60 legislative days of a Congress, but that 60-day clock doesn’t start ticking until Congress is sent a report on the new rule.

Graziano, who helped write the CRA in 1996, said federal agencies often neglect that report requirement. To roll back the rules, the Trump administration could belatedly submit the required report, starting the 60-day review period, and allowing Congress to pass resolutions overturning those rules, he said.

“The administration should take its time,” he said.

But Alan Kaplinsky, a Ballard Spahr attorney who closely tracks the Consumer Financial Protection Bureau, an agency established by Dodd-Frank, is skeptical. “I think it’s moot because I’m pretty sure that the CFPB filed all the reports on time,” Kaplinsky said.

The order “betrays the promises” that Trump made to stand up to Wall Street, said Lisa Donner, executive director of Americans for Financial Reform, a group supporting Dodd-Frank’s regulatory framework.

“But the President does not have the authority to overturn laws or tell independent agencies what to do,” she said. “And it’s flat-out illegal for the agencies to change rules by fiat without public input.”

Source: CQ


For years, Wall Street has complained that restrictions placed on the industry after the financial crisis went too far and were too costly. Those concerns didn’t generate much sympathy — until now.

President Trump has opened the door for sweeping changes to the way financial institutions — big and small — are regulated. He signed an executive order calling for a review of the laws that govern the U.S. financial system in an opening bid to upend the Dodd-Frank Act, the financial overhaul passed in 2010.

Banks and other financial institutions are dusting off their wish lists in hopes of trimming, if not killing, some of the most costly portions of the law. The country’s biggest banks will spend $100 billion over the next five years complying with regulations, said Mike Mayo, a banking analyst with CLSA, a boutique investment firm.

“Dodd-Frank was enacted to prevent another financial crisis,” Mayo said. “And it was done quickly and with purpose, but it was not done efficiently for the industry.”

Of course, dismantling the legislation will not be easy. It took more than a year to pass and is composed of hundreds of regulations issued by more than half a dozen agencies. Some pieces of the bill required the approval of several federal agencies and would be cumbersome to revisit. After hiring thousands of people to help digest the new rules, some big banks say they are not looking for another time-consuming change.

Large financial institutions now must hold onto more capital, a measure of a bank’s ability to absorb losses, and endure yearly “stress tests” to prove that they could survive economic calamity. But that hasn’t stopped some from getting bigger anyway. JPMorgan Chase now has nearly $2.5 trillion in assets, up from about $2.2 trillion in 2008. Wells Fargo has grown even faster, now holding $1.9 trillion in assets compared with $1.3 trillion in 2008.

“We’re not asking for wholesale throwing out of Dodd-Frank,” Jamie Dimon, chief executive of ­JPMorgan Chase, said at a financial services conference in December. James Gorman, chief executive of Morgan Stanley, told CNBC recently, “I’ll be very clear about this: I’m not a fan of getting rid of Dodd-Frank.”

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Two values particularly mark this year’s 2014 MetLife Qualified Retirement Plan Barometer (QRPB) survey of Fortune 1000 retirement plan sponsors: income and simplicity.

The survey found that 57 percent of defined contribution (DC) plan sponsors that don’t include an income annuity are taking a “serious look” at lifetime income options, 34 percent have explored offering such options and 11 percent have conducted due diligence regarding companies that offer lifetime income options.

“DC-only plans sponsors are taking a serious look at lifetime income,” said David DeGeorge, vice president of life and income funding solutions for MetLife.