Trump Orders Review Of Crisis-Era Financial Industry Safeguards

Apr 21 2017 | 9:50pm ET

By Pete Schroeder (Reuters) - U.S. President Donald Trump ordered the Treasury Department on Friday to examine two powers given to regulators to police large financial companies following the 2008 financial crisis, Treasury Secretary Steven Mnuchin said.

In his first visit to the Treasury building, Trump signed two memos that analysts view as largely affirming existing priorities he has outlined.

One temporarily bars regulators from identifying new non-bank financial institutions as "systemically important financial institutions,” or SIFIs, while also ordering a review of this process, Mnuchin said in a briefing with reporters.

SIFIs face added regulatory oversight and must hold more capital as a buffer against losses to safeguard against risk to the financial system.

The other memo directs regulators to temporarily halt the use of "orderly liquidation authority" to dissolve troubled financial institutions unless the president directs it in an emergency. Trump will order a review of this as well, Mnuchin said.

Still, the government has never attempted to use its orderly liquidation authority.

The memo directs the Treasury to review the authority for 180 days, focusing on whether it exposes taxpayers to losses and encourages companies to take on more risk, or whether a revamped bankruptcy process would be preferable.

Critics, including Republicans in Congress, argue the authority effectively gives some firms "too big to fail" status, which could encourage them to take on more risk and necessitate government intervention if they fail.

Trump has long said financial sector oversight could curb economic growth. While the two memos indicate that revisiting the rules remains a priority, they overlap with an earlier executive order the president signed in February directing a review of all financial rules.

The impact of the memos may be limited. Mnuchin had previously said his team was already looking into both the SIFI designation process and the use of orderly liquidation.

The Trump administration has been expected to reduce the number of companies subject to SIFI-level policing.

Only two insurers, American International Group and Prudential Financial are designated as SIFIs because they pose a systemic threat to the financial system.

Banks with more than $50 billion in assets such as JPMorgan Chase and Bank of America are automatically designated as SIFIs by law.

Republicans, who have criticized the SIFI process as opaque and arbitrary, have introduced legislation to curb it. The Financial Stability Oversight Council, a panel of top regulators that Mnuchin now chairs, oversees the process.

"The president will be instructing me to put a hold on that for designations until we do a thorough review and make sure that it’s a fair and transparent process," said Mnuchin.

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