Treasury Report Calls for Sweeping Changes to Financial Rules

09/10/2017 | EIFR

Walter J. Clayton, chairman of the Securities and Exchange Commission, at his confirmation hearing. He said in a statement that a new Treasury report was “a thoughtful and clear analysis of a range of market issues.” Credit Pablo Martinez Monsivais/Associated Press

The Trump administration is again taking aim at the Dodd-Frank Act, releasing a Treasury Department report on Friday that recommended a vast reworking of Wall Street rules adopted in response to the financial crisis.

Some of the proposed overhauls would do away with a requirement for companies to divulge the pay ratio of chief executives to workers, streamline derivatives rules, and give companies more access to capital and investors more places to put their money.

The ideas were welcomed on Wall Street, where banks complain that Dodd-Frank rules have needlessly hobbled growth. But they attracted skepticism from consumer groups and others, who consider the suggestions a dangerous relaxation of checks against a cavalier financial system.

The report offers a guide to agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission, which police activity relating to stocks, bonds and derivatives. But the detailed 220-page document also serves as a gauge of the administration’s attitude toward Wall Street — namely, that market restraints should be loosened.

The proposals follow a report on banking rules released by Treasury officials in June. That report sought to weaken the Consumer Financial Protection Bureau, lighten regulatory scrutiny of small community banks and allow greater exemptions from the so-called Volcker Rule, which bars banks from making speculative bets for their own gain.

Both the June report and the one released on Friday — as well as two more expected in the coming months — originated from an executive order that President Trump signed in February asking Treasury Secretary Steven Mnuchin to reposition financial rules to better match the administration’s aims.

“The U.S. has experienced slow economic growth for far too long,” Mr. Mnuchin said in a statement Friday. “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”

Rob Nichols, chief executive of the American Bankers Association, called the Treasury recommendations “practical, reasonable and achievable.”

“Many of the recommendations in the report would make it easier to raise capital, meet the needs of bank customers operating domestically and abroad, and focus regulatory processes on effective supervision without harming the economy,” Mr. Nichols said in a statement.

Among its proposals, Treasury recommended increasing the amount that can be raised in a crowdfunding offering, to $5 million from $1 million. The department, which also said it hoped to encourage more companies to pursue initial public offerings, pointed out that the number of publicly traded companies had declined by nearly 50 percent in the past two decades. Treasury also addressed rules that require companies to disclose payments associated with foreign resource extraction and the presence of “conflict minerals” from war-racked regions in Africa in their products. It said the rules, which are backed by human rights groups, should be repealed or limited to large, mature companies.

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The report touched on the costs of securities litigation, suggesting more research into arbitration as a way for companies and shareholders to resolve disputes. The document also asked for stronger regulation of the clearinghouses that operate as middlemen between buyers and sellers on Wall Street.

Mike Calhoun, the president of the Center for Responsible Lending, said he was skeptical of claims that regulations stifle the economy, pointing to high profits and substantial share buybacks by banks as evidence that the institutions are “awash in cash these days.”The Treasury report is “more strategic” than other efforts to scale back oversight, but it is “still the wrong prescription for expanding the economy, and a dangerous one,” he said.

The report said the Securities and Exchange Commission and the futures trading commission should be evaluated for any “regulatory overlaps and opportunities for harmonization.”

Walter J. Clayton, who was sworn in as chairman of the Securities and Exchange Commission in May, said in a statement that the Treasury report was “a thoughtful and clear analysis of a range of market issues” that had been drafted with input from his agency.

“We look forward to working alongside other financial regulators and Congress as we pursue our three-part mission to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation,” he said.

J. Christopher Giancarlo, who became the chairman of the futures trading commission in August, echoed the sentiment in his own statement, saying the recommendations would “foster financially sound markets in a way that encourages broad-based economic growth.”

Some of the report’s suggestions will require legislative action, but many can simply be adopted as new policies by regulatory agencies.

In June, the House passed legislation to dismantle several financial regulations enacted through Dodd-Frank, the sweeping overhaul from 2010 that became a hallmark of the Obama presidency. The bill, known as the Financial Choice Act, faces stiff odds of surviving the Senate.