An Open Letter to President-Elect Trump: Seven Financial Services Regulation Priorities

November 11, 2016

Dechert partner Thomas P. Vartanian published an article entitled, "Open Letter to Trump: Weigh the Costs of Regulation," in the November 11 issue of the American Banker. While noting that it is undisputed that federally insured institutions should continue to be closely regulated, the article floated several ideas to begin to reduce the regulatory burden on financial institutions:

  1. Balance Costs and Benefits of Regulation
    All laws and agency rulemaking should include standardized, rigorous cost-benefit analyses to empirically demonstrate that the costs that they will create are reasonable when compared to their overall impact on safety and soundness and the corresponding benefits to the public. The reasonability of a governmental decision should ultimately include whether it will have a positive, negative or neutral impact on the economy.
  1. Assess Impact of the Volcker Rule
    The Volcker Rule should be re-evaluated to consider whether it should be repealed or revised. The complex restrictions that it imposes on the activities of all kinds of banking entities are adding unanticipated costs to market liquidity and capital formation, which may impact future economic growth.
  1. Regularly Review Existing Laws, Regulations
    Given the velocity of change in the financial services business, no regulation should sit on the books for more than five years without its continued existence being challenged and legitimized. Similarly, no new rule should be adopted without also including a built-in obsolescence date.
  1. Develop a Coherent Financial Services Strategy
    Dodd-Frank created a regulatory bias against large institutions, an operational obstacle course for community-based institutions, and a regulatory tax on growth. But it failed to provide a vision of how financial services will be permitted to be delivered in this country on a long-term basis. Financial executives deserve a clear and consistent picture of government policies so that they can steer a course to profitability.
  1. Make Use of Real-Time Exam Tools
    Effective bank regulation that has traditionally relied on annual onsite examinations should be further enhanced by supplementing the hands-on approach with state-of-the-art, real-time electronic monitoring. Many businesses throughout the country value their assets and liabilities each and every day, underscoring that access to real-time data significantly improves decision-making and monitoring of safety and soundness.
  1. Re-evaluate Regulation of Systemic Firms
    The purpose and goals of the FSOC should be re-evaluated. After five years, the FSOC has designated four nonbank financial companies as SIFIs, but only two remain as such. If FSOC continues in some form, its time might be better spent focusing less on SIFI designations and more on developing comprehensive data and effective early warning mechanisms that can provide regulators with the opportunity to take remedial actions before the next crisis unfolds.
  1. Streamline the Regulatory Enforcement Structure
    Depending on the charter, size and locus of a bank, too many agencies are involved in the regulatory process, particularly with regard to enforcement actions. The Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Securities and Exchange Commission, Treasury Department, Consumer Financial Protection Bureau, 50 state banking, securities and consumer protection agencies, and 50 attorneys general may assert jurisdiction with regard to the same facts at the same time. While strong regulation of financial institutions is necessary, regulatory piling-on is wasteful and counterproductive.

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