Experts Warn Treasury Against Plan to Roll Back Bank Regulation
In its response to the Treasury Department’s Report, A Financial System that Creates Economic Opportunities: Banks and Credit Unions, the Systemic Risk Council (“SRC”), a private sector, nonpartisan group of distinguished financial and legal experts cautioned Treasury against weakening bank regulations adopted in the wake of the recent financial crisis.
Prepared in response to President Trump’s Executive Order, Core Principles for Regulating the United States Financial System, the Treasury Report recommends or otherwise encourages policymakers to consider changes in virtually every major area of post-crisis financial reform, including bank capital, liquidity, stress testing, and resolution planning.
While acknowledging that the Treasury Report makes several worthwhile technical suggestions, the SRC warned that the Report “also either promotes or gives an airing to proposals that would seriously reduce the resilience of the financial system and expose the public to unnecessary risk and hardship.”
Adopting these proposals, the SRC notes “would amount to gambling on the questionable assumptions that loosening the constraints on banking would boost short-term credit growth; and that any such boom would bring benefits to parts of the community that would outweigh the longer-term and economy-wide risks for the nation as a whole.”
The SRC’s response to the Treasury Report makes a substantial contribution to the ongoing dialogue on financial reform. It does so by refocusing policymakers’ attention to what’s truly important: achieving the right balance between the related goals of economic growth and long-term financial stability. Let’s hope policymakers heed this advice.
About the SRC:
The Systemic Risk Council is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the United States and Europe. The SRC is chaired by Sir Paul Tucker and includes Volcker Alliance founder, Paul Volcker, as well as Alliance board members, Sheila Bair, Bill Bradley, William Donaldson, and Alice Rivlin.