Core post-crisis rules remain intact that require banks to hold much more capital to protect against losses and to stockpile liquid assets to ensure they can endure runs. Those cushions have been credited -- by lenders and their overseers -- for keeping the Covid-19 economic turmoil from turning into an even more devastating crisis.
Leash Loosened
Still, the FDIC, OCC, Federal Reserve and other agencies have succeeded bit by bit in loosening Wall Street’s leash under Trump. Rules they’ve relaxed include landmark post-crisis constraints, including the stress tests that assess whether banks can keep lending during economic calamities and living wills -- the detailed plans that are meant to map out a firm’s best route through bankruptcy. And deregulation is far from the only way Trump’s presidency has been good for banks, as the industry has been a big beneficiary of his tax cuts.
Regulators’ procedural missteps delayed work on rules relief that was at the top of Wall Street’s wish list, and agencies spent much of their time relaxing oversight for smaller banks. Rules that remain unfinished include an overhaul of big banks’ leverage limits, a long-awaited liquidity standard, a completion of market-risk controls and constraints on financial executives’ bonuses.
In many ways, the pace of rules-cutting has picked up during the coronavirus pandemic, as regulators moved to head off a severe recession by temporarily relaxing limits on banks’ leverage and other constraints. Wall Street critics worry that lobbyists will make a case for the changes to become permanent.
Sherrod Brown, the top Democrat on the Senate Banking Committee, and Senator Elizabeth Warren, one of banks’ most vocal opponents in Congress, sent a letter to regulators this week demanding that they reverse the decision on leverage, saying it’s “dangerous and puts the economy and hard-working families at risk.”
This article was provided by Bloomberg News.