ON THE CAMPAIGN trail, Donald Trump frequently pledged to “dismantle” the Dodd-Frank financial reforms passed in the wake of the 2008 financial crisis. On Wednesday, with the Federal Reserve’s release of a proposal to roll back capital and liquidity requirements, he caught his big whale.
Those requirements, imposed by the Dodd-Frank Act, were put in place to ensure that critical financial institutions could weather economic storms. The liquidity ratio was only finalized in September 2014. And yet, just four years later, on October 31, the Federal Reserve announced proposed changes that would reduce liquidity requirements by almost a third for banks such as Capital One and Charles Schwab with assets of $250 billion to $700 billion. Smaller banks would have even fewer restrictions.
In the lone dissent on the Fed’s four-member board, Lael Brainard said she could not support the proposal, which, among other things, would “weaken the buffers that are core to the resilience of our system.”
The proposal was one of a series of dramatic changes pushed forward by the Economic Growth, Regulatory Relief, and Consumer Protection Act, which Congress passed in May with bipartisan support. That bill also weakened the Volcker Rule, implemented in 2015 to limit banks’ ability to make speculative proprietary investments — another centerpiece of Dodd-Frank designed to rein in potentially fatal risk-taking by big banks.
The bill exempted smaller banks from compliance with Volcker. The same month it passed, the Fed proposed sweeping changes to further weaken Volcker, shifting the burden of proof on compliance on each trade from the banks to oversight agencies.
Thanks, but We Want More
Both Fed proposals — on liquidity and Volcker — were promoted as an effort to reduce compliance costs. Jerome H. Powell, chair of the Fed, said of the Volcker proposal that it simply offered “a more streamlined set of requirements” for banks.
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