Trump Lays Out "Highly Anticipated" Plan To Overhaul Bank Rules: Here Is Goldman's Take

Nearly four months after Donald Trump signed an executive order calling for a review of Wall Street regulations, the administration has laid out part one of its plans for reforming the system in a detailed report released by the Treasury Department late Monday.

Some of the more notable proposals in the highly-anticipated report - the first in a series that will detail the administration’s thinking on how it plans to proceed with paring back post-crisis regulations in the financial services industry – include: adjusting the annual stress tests, easing trading rules (i.e., gutting the Volcker Rule), and paring back the power of the watchdogs  - like the Consumer Financial Protection Bureau.

The Treasury said its plan was designed to spur lending and job growth by making regulation ‘more efficient’ and less burdensome, according to Bloomberg although in reality it simply caters to the "requests" of Wall Street, which has been limited in its activities since Dodd-Frank, most notanly prop trading, although in most cases banks, like Goldman, have found simply loopholes around the Volcker Rule. Also of note, "unlike the bill passed last week by House Republicans, the report consistently calls for most Obama-era rules to be dialed back, not scrapped."

In a statement released along with the report, Treasury Secretary Steven Mnuchin said that while the administration backs congressional efforts to roll back Dodd-Frank, the report focuses on actions that can be taken without involving Congress. In fact, between 70 and 80% of its recommended reforms can be made unilaterally through federal agencies' independent rulemaking authorities.

As expected, Democrats were quick to criticize the plan with Ohio Senator Sherrod Brown, the ranking member of the Senate Banking Committee, claiming that the reforms would gut the Consumer Financial Protection Bureau, the centerpiece of Dodd-Frank. The report is extremely critical of the fledgling agency, accusing it of being “unaccountable” and possessing “unduly broad regulatory powers.” To rein in the bureau, the Treasury report calls for the president to be able to fire its director for any reason, not just for cause as is now the case, as Bloomberg noted.

Meanwhile, representatives of the banking industry expressed their support for the report's findings.

“Today’s Treasury report is an important step to refine financial regulations to ensure that they are supporting — not inhibiting — economic expansion,” said ABA President and CEO Rob Nichols.We applaud Secretary Steven Mnuchin for recognizing that we need regulatory reform to boost economic growth, and we expect this report will serve as a catalyst in that effort.”

As Bloomberg adds, some of the most unpopular regulations that the report asks to re-do, such as the Volcker Rule ban on banks’ proprietary trading, were put together by five different agencies. It was not immediately clear which bank was supervising them.

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In any case, just because the administration has found a way to bypass Congress doesn't necessarily mean that the reforms will be swiftly implemented. Some of the report’s most ambitious recommendations – such as reforming the Volcker Rule ban on proprietary trading - will require the cooperation of numerous separate federal agencies, as Bloomberg noted.

On the Volcker Rule, Treasury outlined several ways that regulators and Congress should consider weakening it, Bloomberg reported. Banks with less than $10 billion in assets should be exempted altogether, the report argued. It also said all lenders should have more leeway to trade and that restrictions on banks’ investing in private-equity and hedge funds should be loosened.

In other words, a return to the way Wall Street was before the financial crisis.

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And since it was mostly Goldman who was behind the report, here is Goldman's take on the key changes:

US Treasury report proposes regulatory changes for US banks

The US Treasury released its report on the US financial system, titled A Financial System That Creates Economic Opportunities, which proposes sweeping changes to the US regulatory framework with the  aim of achieving regulation consistent with the ‘Core Principles’ in President Trump’s Executive Order 13772. We note that proposals in the report do not represent policy actions and are preliminary in nature, particularly given the US Treasury is not an agency tasked with rulemaking. As we highlighted in our report of March 7, 2017, The regulatory reform agenda: Bank regulation through a growth lens, there are different thresholds for changing: 1) regulatory interpretations; 2) regulations as implemented by the regulatory agencies (e.g., the Fed, and the FDIC); and 3) Congressional legislation. Changes in the Treasury’s report would span all three.

The report is far reaching and discusses in detail a number of changes throughout the US regulatory regime. Below, we summarize key takeaways across areas where we think the proposed changes will be most impactful.

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Making CCAR biennial, changing thresholds

  • The report suggests a wide variety of changes to the CCAR process, adjusting both the timing of the process and the asset thresholds, as well as eliminating the qualitative overlay. In our view, changes to the CCAR process would represent interpretation changes that have the lowest threshold for implementation.
  • Adjust the minimum asset threshold for inclusion in the Dodd Frank Act Stress Test (D-FAST) from $10bn to $50bn and eliminate the qualitative CCAR process.
  • For banks above $50bn in assets, the report suggests including a more risk sensitive test for determining whether a bank should be included based on the complexity of its business model. This suggests that banks near the $50bn threshold, such as DFS, CMA and ZION, might benefit most from this revised test.
  • The Comprehensive Capital Analysis and Review (CCAR) process should be biennial, rather than yearly.

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Changes to the Supplementary Leverage Ratio (SLR)

To improve the functioning of capital markets, the Treasury recommends making substantive changes to the calculation of the SLR, through the exclusion of cash and cash equivalents from the  denominator of the calculation. The proposal goes further than we had anticipated as it recommends excluding not only cash with central banks but also US Treasury securities, and initial margin for centrally cleared derivatives.

While we expect that these changes will only lead to a greater level of excess capital for one of our banks, MS – we expect it to add $2.5bn to its excess capital (3% of market cap) we believe that if this change were implemented, banks could start to make some structural changes to their balance sheets in order to reduce Tier 1 leverage ratios as well, which could free up some excess capital (Exhibits 2 & 3).

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Volcker: More exemptions, improved coordination and streamlined reporting

The report states that the Volcker Rule has “far overshot the mark” (p. 71) and has given rise to an “extraordinarily complex and burdensome” compliance regime. In our view, the proposed changes would have a far reaching impact on the structure and enforcement of the rule. However, we note that it is not clear how many of the proposed changes would require either an amendment to Dodd-Frank or an NPR or both.

The Treasury recommends that the amended Volcker rule should provide increased flexibility for market making. Including, giving banks more flexibility on managing inventory. The proposed changes also call for a simplification for the enforcement and compliance regime.

  • Give banks flexibility to adjust their inventory levels.
  • Agencies should ensure that interpretive guidance and enforcement is consistent and coordinated.
  • Banks with <$10bn total assets should be exempt; banks with >$10bn in assets but <$1bn in trading assets and trading liabilities and whose trading assets and liabilities represent 10% or less of total assets should be exempt.

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Increasing the availability of credit

The report recommends fostering an environment conducive to increasing the availability of credit with a particular focus on residential mortgages, leverage loans and small business loans. Key highlights:

  • Repeal or revise the resi mortgage risk retention rules;
  • Encourage banks to rely on a robust set of metrics instead of a simply 6x leverage metric when making leveraged loans;
  • Consider reassessing regulations concerning CRE lending to promote additional flexibility for situations where a loan has strong collateral;
  • Consider adjusting the calibration of the SLR for small business loans.

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Other areas of focus

In addition, the Treasury also recommends revisiting calibration of capital and liquidity rules as well as the role of the CFPB.

  • To ensure competitiveness with global regulatory standards, revisit calibration of a variety of capital and liquidity rules, including: the US G-SIB surcharge; the Federal Reserve’s Total Loss Absorbing Capacity (TLAC); The Federal Reserve’s minimum debt rule; and Calibration of the enhanced SLR (eSLR), which applies to US G-SIBs.
  • Living will should be moved to a two-year standard.
  • US Liquidity Coverage Ratio (LCR) should only be applied to US G-SIBs, and a less stringent standard should be applied to other internationally active BHCs.
  • Curtailing the powers of the Consumer Financial Protection Bureau.
    • Make the director of the CFPB removable at will by the President.
    • Fund the CFPB through the annual congressional appropriations process to enable Congress to exercise greater oversight and control over how taxpayer dollars are spent.

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Full report below (pdf link):


NidStyles medium giraffe Tue, 06/13/2017 - 08:24 Permalink

It's so absurd that wealth is being determined by non-producers that charge you to take loans of paper that you paid for while being charged interest by those same non-producers.

The whole planet outside of the Middle East is enslaved with stupidity and naivety towards people from the Middle East...

They are either indebting everyone, or killing/raping everyone. Seems to me that's a trend. Is no one really going to do anything about this absurd situation?

In reply to by medium giraffe

quadraspleen Give_me_liberty_or Tue, 06/13/2017 - 09:11 Permalink

"The Treasury said its plan was designed to spur lending and job growth by making regulation ‘more efficient’ and less burdensome" Anything that does those things in favour of banks does not have "job creation" at its core. It has pure debt-based profit-making as a driver. Anything that encourages higher profits, in today's rigged labour markets, will result in less job creation, not more..Do we need lending "spurred"? Don't we all owe enough already?!

In reply to by Give_me_liberty_or

NidStyles chunga Tue, 06/13/2017 - 10:31 Permalink

That's business as usual.

It's only a matter of time before the rats start fleeing with their shekels, and then it's upon us to fight off the full color revolution that will occur shortly after.

The real question is will the remaining Americans have the strength to do what is asked of them, or will they cuck and take the easy way out with collective ethnic suicide?

Will East Europe be the last remaining bastion of European heritage, or will the Americans actually reclaim their inheritance?

It's obvious that Western Europe has lost the will to fight off invasion....

In reply to by chunga

nevertheless NidStyles Tue, 06/13/2017 - 08:43 Permalink

"The whole planet outside of the Middle East is enslaved with stupidity and naivety towards people from the Middle East..."How can anyone point to the Middle East and say, they are the problem, unless you are strictly referring to Israel or Saudi Arabia. Syria, Iraq, Iran, Libya, all places where people of all religions have lived in peace, but the cancer Israel/Saudi Arabia, spend American tax payer money to pay to spread terrorism and violence. "The whole planet outside of the Middle East is enslaved with stupidity and naivety towards people from the Middle East...", because the nations of the Middle East don't allow usury, and they see Zionist Israel for the demons they truly are. 

In reply to by NidStyles

NidStyles nevertheless Tue, 06/13/2017 - 10:41 Permalink

You missed my point, as per usual. I am not a Middle Eastern person, why is any ME BS any of my concern? Why are these people in my country? Why must I have pretenses to like any of them, and why are there so many of you telling me that I need to value any of them?

None of these people give a shit about me, much less any of the rest of my people. They see our women as something to buy or take, and the rest of us as slaves.

Peace in your mind is not peace in my mind. Islam literally means submit.

I'm not interested, they can all go back and fuck their goats in their home countries.

In reply to by nevertheless

NidStyles gadzooks Tue, 06/13/2017 - 13:26 Permalink

I'm waiting for the blood to start flowing. There's been a nearly 300 years of pushing by the Middle Easterners. The blowback is going to be so fanatically violent that no previous conflict will even compare.

The Jews and their Arab brothers are literally playing with nuclear fire and centuries of pent up rage. I'm not sure how they think this is going to end, but it's not going to be anything like they have ever seen before.

In reply to by gadzooks

nevertheless VD Tue, 06/13/2017 - 08:49 Permalink

STOP PLAYING TRUMP AS SOME BABE IN THE WOODS!!!!!!!!!!!!!!!Trump is surrounded with Zionist Wall Street filthThe Trump administration had more representation at Builderberg than any other administration in American history.While trump has played up the "Muslim travel ban", he has all but ignored Latino/Mexican migration, because Latino migration is something Zionist want!TRUMP IS A PUPPET OF THE ZIONIST WORLD ORDER, pull your head out! 

In reply to by VD

VD nevertheless Tue, 06/13/2017 - 09:01 Permalink

have you reviewed illegal crossings rates since Trump took office, or are you too busy deluding yourself re: "Zionists"? Deep Corp runs far deeper than any "Zionist world order" and doesn't discriminate based on religion or race; ie it is only concerned with power since well before the 15th century (pre-Inquisición Española).

In reply to by nevertheless

Justin Case medium giraffe Tue, 06/13/2017 - 08:41 Permalink

A big step forward would be to enforce the regulations that are in place already. One just need look up JP Morgan. The list of violations and billions of dollars in fines. Reforms won't fix anything. They need consequences for violating the current rules and regulations, also address repeat offenders.Banks should not be allowed to trade in the markets either. They have too much information on positions and clients. If any individual has as much information on the markets  would be called "insider information". Banks are allowed to, for propriatery trading?Over $2 quadrillion per year in trades happen in just two Exchange Casinos–the CME Group, Inc. and ICE, Inc.These private corporations run their casinos with high-speed computer programs that have high-jacked 80% of U.S. mortgages and 100% of the stocks, bonds, commodities and futures traded on the New York Stock Exchange (NYSE:ICE) and the Chicago and New York Mercantile Exchanges and the many other exchanges owned by CME and ICE.The computers that run these exchanges are private and are not subject to federal regulation, but are in fact considered “self-regulating organizations.” The Federal Reserve System is supposed to monitor the exchanges, but the Federal Reserve is also a private corporation that is owned by the same shareholders who own ICE and CME as well as the other private corporations who get the lion’s share of military contracts also.The exchange and market casinos should have been stopped long ago, but the feast was too good and the succors (average American investors) weren’t awake to understand how they were being ripped off.  Unfortunately, out of control gambling on futures through derivatives by total insiders (both as players and regulators) has created a house of cards that will fall by removing a single key card.  When they collapse, it will become clear that the holding companies behind ICE and CME will still own the stocks, commodities, bonds and mortgages that were being traded on their exchanges. ICE and CME sign all stocks, bonds, commodities and futures over to a holding company that is separate from the exchange. This is done to avoid paying taxes during trading while the financial instruments are held in a bankrupt-proof company (Cede and Company). Yes, bankrupt-proof by federal regulation. Therefore, if ICE or CME’s exchanges go bankrupt, they still own all the stocks, bonds, commodities, and mortgages through Cede and Company.ICE and CME will come out of a world-wide collapse owning all of the stocks, commodities, bonds, and futures that were on their exchanges at the moment of collapse. They have no repercussions from the bankruptcy because their partner holding companies hold the bankrupt-proof ownership of everything of value being traded on their exchange.…

In reply to by medium giraffe

BabaLooey Tue, 06/13/2017 - 08:18 Permalink

Let's see how Trump-ish - Trump IS.....Have to give this a good read before I pass judgment.10 MINUTES LATER...We'll see <folding arms>From the meat up there; "Properly structuring regulation of the U.S. financial system is critical to achieve the administration’s goal of sustained economic growth and to create opportunities for all Americans to benefit from a stronger economy,” Mnuchin said. “We are focused on encouraging a market environment where consumers have more choices, access to capital and safe loan products – while ensuring taxpayer-funded bailouts are truly a thing of the past.” the key word being "ensuring"...........

Bes BabaLooey Tue, 06/13/2017 - 12:27 Permalink

and you actually believe the swamp creatures who speak out of both sides of their mouth?taxpayer funded bailouts will always be an option.   sucker depositer bail-ins will always be an "money" from the FED, fractional reserve banking, debt-slavery is policy. and orange jesus is definitiely not changing that shit.  

In reply to by BabaLooey

ArkansasAngie Tue, 06/13/2017 - 08:20 Permalink

The blight of the "small" bank is hard. How about scrapping the current rules and going back to Glass Steagall for banks under 10 billion. Then let depositors choose who they want to business with

Give_me_liberty_or Giant Meteor Tue, 06/13/2017 - 08:46 Permalink

The politicians are subservient to the central banks because the CBs inflate bubbles "filled with poison gas" and hold it above their heads and threaten to pop them.  The countries CBs are subservient to the IMF and BIS because they need the liquidity to slosh around to keep the racket going.  The sytem is inherently a rigged system, and little nickel and dime shits like this are just window dressing distractions and political levers.  People call Christians dumb because they simplicstically call everything "the devil."  Well that's what it is; it's a metaphor and economically, the NWO is already here.  Next phase is cultural genocide, which is well on it's way.Edit: and O, if people think the publically published balance sheet and other data coming out of the FED is accurate, I have a bridge to sell you.  It is %100 percent propaganda.  They could own half of microsoft and you would have no idea.

In reply to by Giant Meteor

NewNeo Tue, 06/13/2017 - 08:19 Permalink

This sounds like it's for the bankers! "Hey, what else can we screw the middle class over on?" " hey I know, let's repeal consumer law!"