President Donald Trump is expected to issue directives Friday aimed at unwinding regulations put into place after the financial crisis.
The moves will target two key areas — “living wills” that banks must formulate to show how they would be broken up if they are in danger of failure, and the designation of what institutions will come get more intense federal scrutiny under the financial reforms.
In addition to the banking measures, the administration also will be ordering a review on rules regarding inversions, or when companies switch their domiciles to other countries to escape U.S. tax burdens.
The banking orders “signal that the Administration will continue a push to remove key regulations that were implemented as part of the Dodd-Frank Act,” analysts at FBR said in a note to clients.
One part will deal with the Orderly Liquidation Authority, which aims to reduce the burden of too-big-to-fail banks that endangered the financial system during the crisis. Large institutions posed widespread risk because of their interconnected nature, and the Dodd-Frank reforms sought to establish procedures for how to pull those banks apart in the case of another crisis.
However, some nonbanks also came under the measure’s umbrella. MetLife last year successfully sued to have itself removed from the list of so-called systemically important financial institutions, but American International Group and Prudential remain on the list.
AIG was a central figure in the crisis, requiring a taxpayer bailout after insurance it issued against mortgage defaults exploded and posed serious risk to the business.
Mnuchin to look at alternatives
Trump likely will order regulators to review the process used to designate SIFIs, with the result being that nonbanks will be removed from the list.
On the living will issue, Trump will instruct the Treasury Department to review the provisions that require companies either to pass muster or face having to shed businesses or raise capital.
Ultimately, the OLA provisions could be repealed and replaced with a new system.
“Systemically important banks would benefit from this change: It would decrease their compliance costs in preparing their living wills, reduce the likelihood of higher capital requirements, and prevent regulators from shutting down certain business lines,” FBR said.
Trump has said that he believes Dodd-Frank is unfair, and he’s targeted it for significant changes.
Treasury Secretary Steve Mnuchin will get 180 days to report back to Trump on changes to the bank designation and living will provisions. Parts of the bankruptcy code could be used as an alternative to the living wills.
“These expected memos show a continued commitment to undo many of the changes
implemented by Dodd-Frank , and we expect … other federal financial regulators to accelerate this process,” FBR said.