Desiree Sainthrope is a Legal expert with extensive experience drafting and analyzing trade agreements. She is a recognized authority in global compliance and possesses a broad range of interests within the legal field, including intellectual property and the evolving implications of technologies such as AI. In this interview, she shares her insights on upcoming changes to US banking regulations and the Treasury Department’s enhanced role under new leadership.
Could you elaborate on the role the U.S. Treasury Department will take in banking regulation moving forward?
The U.S. Treasury Department plans to take a more proactive stance in banking regulation, aiming to balance the costs and benefits more effectively. This involves ensuring that banks are not excessively restricted, thereby enabling them to finance economic growth more robustly.
What specific steps will the Treasury take to balance costs and benefits in banking regulation?
The Treasury will adopt “commonsense principles” designed to ease regulatory burdens, particularly for community banks. These principles will be implemented through tools like the Financial Stability Oversight Council and the President’s Working Group on Capital Markets to create a more tailored and efficient regulatory framework.
The principles you mentioned for easing burdens on community banks seem central to your strategy. Could you detail these “commonsense principles”?
These principles include adjusting regulations to be more fitting for the size and scope of community banks, ensuring that they are not disproportionately affected by rules meant for larger institutions. This could involve simplifying compliance requirements and reducing redundant or overly burdensome regulations.
How will these principles specifically help community banks compared to larger institutions?
Community banks often lack the resources to manage complex regulatory requirements. By creating more proportionate regulations, these banks can focus more on their core mission of serving local communities without the added strain of unnecessary compliance burdens. This enables them to allocate resources more efficiently and support local economic growth.
You mentioned the Financial Stability Oversight Council. How will Treasury’s involvement in this council change?
The Treasury’s involvement in the council will become more active, potentially leading the dialogue and decision-making processes. This shift means that Treasury will play a significant role in coordinating regulatory policy across various financial agencies.
What role do you envision for the Treasury in shaping the council’s decisions?
Treasury will likely focus on ensuring that the council’s decisions align with broader economic objectives, such as fostering stability and growth. This might involve setting agendas, proposing regulatory changes, and ensuring that all important viewpoints are considered.
The President’s Working Group on Capital Markets was also mentioned. Can you explain how this group will contribute to the Treasury’s objectives?
This group’s primary function is to study financial trends and issues. Through this work, it will provide the Treasury with valuable data and insights, enabling more informed regulatory decisions that are responsive to real-time market dynamics.
How would this group’s studies on financial trends help in crafting better banking regulations?
By analyzing current market conditions and trends, the group can identify emerging risks and opportunities. This information helps the Treasury and other regulators to develop proactive measures that address potential issues before they become significant problems.
You spoke of engaging with individual regulators like the Office of the Comptroller of the Currency and the FDIC. What form will this engagement take?
This engagement will likely involve regular coordination meetings, collaborative policy development, and joint oversight initiatives. The goal is to create a more cohesive regulatory environment where agencies work together towards shared objectives.
How will collaboration with these regulators impact the overall banking regulatory environment?
Such collaboration should lead to more consistent and effective regulation. It allows for the pooling of resources and expertise, reducing redundancy, and ensuring that all regulatory actions are well-targeted and complementary.
Accountability has been an issue in past banking regulations. How does the Treasury plan to address this?
The Treasury intends to enhance transparency and public scrutiny. This could involve clearer lines of accountability, regular public reporting, and open forums where regulatory actions are explained and debated.
What specific measures will be taken to ensure transparency and accountability in regulation?
New measures might include public commenting periods for regulatory changes, formal audits of regulatory agencies, and mandatory disclosure of enforcement actions and supervisory findings to the public.
Your comments were brief on specific changes to banking regulations or capital requirements. Could you provide more details or examples?
One example might be the review of the capital buffer framework for large banks to ensure it aligns with statutory mandates and serves as an effective safeguard against financial instability.
How will the Trump administration review the capital buffer framework for large banks?
The administration will analyze whether the current capital requirements are sufficient to protect against risks while still allowing banks to lend and operate efficiently. This could involve adjustments to the minimum capital reserves banks must hold.
You emphasized the importance of regulations deriving from clear statutory mandates. What mandates are you referring to?
Key mandates include ensuring the safety and soundness of financial institutions, mitigating systemic risk, and protecting consumers. These statutory requirements provide a foundation for all regulatory actions.
How will safety, soundness, mitigating risk, and consumer protection be incorporated into these mandates?
Regulations will be explicitly designed to address these priorities, with specific rules and oversight mechanisms that support stability, reduce risk, and ensure fair treatment of consumers.
Efficiency in regulation is another key point you raised. How do you propose to strike a balance between regulatory costs and benefits?
By evaluating the impact of regulations on both the financial system and the economy at large, the Treasury can fine-tune rules to maximize benefits while minimizing unnecessary burdens. This might involve streamlining processes and cutting down on red tape.
What measures will be taken to ensure that regulators maintain efficiency in their budget and staffing?
Regulators will be encouraged to adopt best practices in resource management, perhaps through performance reviews and benchmarking against other agencies to identify areas for improvement.
Fair and even application of regulation was mentioned. What steps will be taken to ensure this fairness?
The Treasury will work on standardizing examination procedures and ensuring that all financial institutions are subject to the same rigorous standards, regardless of their size or affiliation.
How will changes in examination procedures improve the regulatory process?
By making examination procedures more predictable and transparent, institutions can better understand and comply with regulations. This also reduces the risk of biased or inconsistent enforcement.
The term “unsafe and unsound” was highlighted. How do you propose to define these terms objectively?
The Treasury will develop clear, measurable criteria for what constitutes “unsafe and unsound” practices, rooted in financial risk indicators such as capital adequacy, liquidity levels, and operational stability.
What factors will be considered in rooting this definition in financial risk?
Factors might include credit risk, market risk, operational risk, and compliance risk. Each of these elements will be assessed quantitatively and qualitatively to create a comprehensive, objective standard.
Do you have any advice for our readers?
Stay informed and engaged with regulatory changes. Understanding the evolving landscape can help individuals and businesses navigate risks and opportunities more effectively.
