President Trump Asks Secretary Mnuchin to Review “Too Big to Fail”
Amidst the ongoing negotiations to reach a deal on Obamacare, the Trump administration continues laying the groundwork for the repeal of Obama’s legacy in the financial sector-Dodd-Frank.
Last week, President Trump issued two Presidential Memorandums ordering Treasury Secretary Mnuchin to review different aspects Dodd-Frank that perpetuate “too big to fail,” put taxpayers at risk, and inject moral hazard into markets.
The first memo calls for a review of the Financial Stability Oversight Council’s (FSOC) process to designate non-bank firms a systemically important financial institution (SIFI). Once labeled a SIFI, a given firm is then subjected to heightened regulatory burdens. This memo comes on the heels of a report that exposes FSOC’s designation process as “arbitrary and inconsistent.”
The second memo calls for a review of Dodd-Frank’s Title II Orderly Liquidation Authority. Instead of letting failed firms go through the established bankruptcy process, orderly liquidation gives regulators power to take over failing firms to supposedly prevent a full-scale financial crisis. However, this option of a federal government backstop does not end “too big to fail” and merely encourages risky behavior.
President Trump’s memorandums reinforce this administration’s commitment to financial regulations that protect taxpayers from bailouts, foster economic growth, and promote market stability. Coming at an appropriate time, the Financial Services Committee will hold a hearing this week to review The Financial CHOICE Act. This bill to repeal and replace Dodd-Frank would tackle, among other things, the very same issues President Trump cites in last week’s memos.