Trump administration seeks to weaken financial crisis safeguards
The Trump administration has called for the removal of key provisions in President Obama’s financial reform legislation, the Dodd-Frank Act, which was devised in response to the 2008 financial crisis, and for a weakening of the Consumer Financial Protection Bureau (CFPB), in a report released on Monday. The report accused the CFPB of regulatory overreach. It also called exemptions from the Volcker Rule banning banks from trading for their own benefit and for small community banks to be given relief from certain regulations. If introduced, the recommendations would also exempt some institutions from Dodd-Frank’s risk-taking restrictions.
The Trump administration has been supportive of the House bill, although the Treasury report did not go as far as the House plan in some regards. For instance, it would exempt smaller institutions from the Volcker Rule rather than revoking it entirely. The Volcker Rule, a Dodd-Frank provision, bans banks from trading for their own gain and limits ownership in hedge funds and private equity deals.

The Trump deregulation plan sets up a clash between Mr. Trump and one of his most vocal Democratic critics: Senator Elizabeth Warren of Massachusetts. The Consumer Financial Protection Bureau was her brainchild. Among other approaches to scaling back its power, the Treasury report called for its funding structure to be changed so it is beholden to the annual appropriations process.

“The C.F.P.B. was created to pursue an important mission, but its unaccountable structure and unduly broad regulatory powers have led to predictable regulatory abuses and excesses,” the report said. “The C.F.P.B.’s approach to rule making and enforcement has hindered consumer access to credit, limited innovation and imposed unduly high compliance burdens, particularly on small institutions.”

The report did not take up many other important financial-regulation issues, but several more reports from the Treasury are due this year. The report did not address reform of the government-controlled mortgage finance giants Fannie Mae and Freddie Mac, which have been in a government conservatorship for nearly nine years.

But the report did focus a good deal on the effect of postcrisis regulations on the mortgage market, saying that some of the rules had added costs to the business of servicing mortgages. The report said “increased oversight and regulation has led to an increase in compliance costs,” which limits the ability of mortgage firms to spend more money “on developing more effective mortgage servicing platforms and technology.”

The Treasury recommended a slowdown in new regulations for mortgage servicers.

Many of the regulations imposed on mortgage servicers came about because of foreclosure abuses during the financial crisis that led big banks to pay tens of billions in fines and restitution.

However, the report recommended a number of regulatory changes to spur greater mortgage origination. In particular, the report said, there needs to be “careful study of regulations and the extent to which they may be holding back the supply of mortgage credit.”