Financial Reform
plan of action
The 2007-2009 Financial Crisis: A Cautionary Tale for the Ages
U.S. regulators have relaxed post-financial-crisis rules to allow the nation’s largest lenders to free up some of the capital they have been required to have to ensure they can survive in times of market stress and turmoil. This capital requirement is called the supplementary leverage ratio, and it governs how much capital big banks are required to hold against their total assets/leverage. This rule applies the same capital to all bank assets, whatever their risk (including loans, Treasuries and derivatives). We should look into reversing this.
This new change reduces the ratio from at least 5 percent of the bank’s total assets to somewhere between 3.5 percent and 4.5 percent, reducing the amount of capital that big banks hold at the holding company level by an estimated $13 billion. The capital requirements for the largest banks’ subsidiaries (as opposed to the holding company) will drop 27 percent, translating to a reduction of $210 billion in capital.
The regulators’ justification for this move is that lowering these requirements will help bolster global markets because banks will surely buy more Treasuries – which we already know they probably won’t do. Morgan Stanley has already said they don’t expect to “significantly increase” their Treasury holdings, and Bank of America has essentially said the same. What they all will do, as history clearly shows, is funnel more money into dividends and stock buybacks.
Absolutely, positively DO NOT privatize Fannie Mae and Freddie Mac, which support around 70 percent of the U.S. mortgage market. Privatizing Fannie and Freddie would be a windfall for investors but would most likely screw the American consumer – possibly making home loans more difficult to get, increasing mortgage rates, and losing protections like rate-lock agreements. If the Trump/Vance administration succeeds in privatizing Fannie and Freddie, fight them in court.
The Trump/Vance administration is pushing for less supervision and accountability for banks; a change in how they are rated; and an easing of their stress tests, which are designed to assess a bank’s ability to withstand an economic crisis. If they succeed, reverse this.
Create a less complicated and less-burdensome supervisory and regulatory process for community banks.
Impose a tax on the borrowings of shadow banks with assets over $50 billion; 1.2 percent for those not systemically important.
Close the loophole in the Volcker Rule allowing banks to engage in equity investments.
The first Trump administration made banks with less than $10 billion in assets exempt from the Volcker Rule. Reverse this.
The first Trump administration increased the threshold for stress tests from $50 billion to $250 billion. Reverse this.
Finalize executive compensation rules for financial executives in Section 956 of Dodd-Frank.
Make certain the derivative markets are transparent and accurately assessed.
Strictly and consistently enforce high standards and accountability for credit rating agencies and NRSROs.
Consistently hold auditors accountable through strict enforcement by the Public Company Accounting Oversight Board (PCAOB).
Prosecute financial crimes to the fullest extent of the law.
Rebuild and protect an independent Consumer Financial Protection Bureau. Protect its Office of Fair Lending and Equal Opportunity.