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2017-11-28 04:45:04
Casting Wall Street as Victim, Trump Leads Deregulatory Charge

A decade after the financial crisis, the federal government is easing up its policing of Wall Street and the banking industry, even without actually repealing broad swaths of regulation.

The public battle over who will serve as the acting director of the Consumer Financial Protection Bureau — with the White House trying to install Mick Mulvaney, a staunch opponent of the agency — is the most recent example of the banker-friendly approach that has gripped Washington. Less visible are the subtle but steady efforts at the White House, in federal agencies and on Capitol Hill to lessen the regulatory burden on banks and financial firms since President Trump took office.

At the Treasury Department, officials are trying to make it easier for financial firms to avoid being tagged as “too big to fail,” a designation that subjects them to greater oversight. A major banking regulator, the Office of the Comptroller of the Currency, has become more forgiving of big banks when it comes to enforcing laws. And the Securities and Exchange Commission is reining in the power of regional directors to issue subpoenas.

In Congress, a bipartisan group of lawmakers is pushing legislation to reduce regulation on small financial institutions. The proposal contains “targeted, common-sense fixes,” said one of the bill’s sponsors, Senator Mark Warner, a Virginia Democrat who now supports a handful of changes and exemptions to rules he voted to impose after the financial crisis.

The changes are the result of a combination of forces: business-friendly appointments by the president, a lack of financial and personnel resources at many federal agencies, minute changes in rules imposed by regulators and a relaxation in how bank examiners supervise large institutions.

Most noticeably, there’s been a dramatic change in tone from the White House. This weekend, Mr. Trump wrote in a Twitter post that regulators, in particular the consumer bureau, have left the financial industry “devastated and unable to properly serve the public.”

It was a rare instance of a politician casting Wall Street as a victim — especially since the banking industry is on a roll. Commercial banks last year generated $157 billion in profits, the highest level ever, according to the Federal Deposit Insurance Corp. Banks are making lots of loans. Their stock prices have been marching ever higher.

Critics of the Trump administration’s approach argue that the regulatory pendulum is swinging too far and too fast in favor of the banking industry, risking a repeat of the problems that led up to the financial crisis.

“The fear is that this administration will go back on all of the promises that it made on the campaign trail to look out for the little guy and will roll back all of the protections that were put in place after the 2008 economic collapse,” said Karl Frisch, executive director of Allied Progress, a consumer group. “What’s happening at the consumer bureau is a perfect example of that. They’re trying to put in charge a guy who doesn’t even believe that the C.F.P.B. should exist.”

While Mr. Trump is tapping the regulatory brakes, there has not been a wholesale rollback of financial rules or law enforcement. Indeed, much of the post-crisis regulatory infrastructure erected by the Obama administration — most notably, the Dodd-Frank Act — remains intact. And some of the recent regulatory changes have won support not only from banks but from consumer groups and traditional supporters of staunch regulation.

Barney Frank, the former representative from Massachusetts, said he supported some of the proposed tweaks to the act that bears his name. Loosening the regulation of community banks is fine so long as the big banks remain curbed, he said in an interview Monday.

“There is some laxity coming,” Mr. Frank said. “Some bank regulators are probably more willing to trust the banks not to get in trouble. But the rules to prevent them from getting into trouble will still be there.”

It is not surprising that, with Republicans on both ends of Pennsylvania Avenue, a regulatory rollback is underway. There’s also a natural easing that comes after any period of intense regulation.

“There is an extraordinary need to rebalance regulation so safety and soundness and business freedom are better aligned,” said Thomas Vartanian, a bank regulatory attorney who has been considered for several positions in the Trump administration. “I think that will be the goal of this administration.”

Jamie Dimon — the chief executive of JPMorgan Chase and one of Wall Street’s most powerful voices — expressed similar sentiments on his bank’s latest earnings call.

“No one’s talking about throwing out Dodd-Frank and changing everything,” Mr. Dimon said. “That’s never been part of the conversation. This is about recalibrating some of the very detailed rules in there so that markets are more liquid and mortgages are more available and stuff like that.”

The number of penalties and fines levied by the S.E.C. and the Commodities Futures Trading Commission against Wall Street firms during the most recent fiscal year are down compared with the previous year.

“What you are seeing is very subtle and significant changes in how certain regulations are being enforced,” said Chris Whalen, a financial consultant who once worked at the New York Federal Reserve. “They are still on the case of the banks. But in the case of the annoying and expensive of implementation of Dodd-Frank, that is changing in significant ways.”

Former enforcement officials said it was too soon to draw any firm conclusions about how aggressive the agencies will be. The early Obama years, they noted, were ripe with cases arising from the financial crisis.

The S.E.C. scrapped an initiative to pursue marginal securities offenses in an effort to focus the agency’s limited resources on bigger enforcement cases at a time when it is operating under a hiring freeze. The so-called broken windows strategy adopted by Mary Jo White, the commission’s former chair, was seen by critics as boosting the agency’s enforcement numbers without producing any lasting reduction in bad behavior on Wall Street.

While most of the deregulatory action has taken place in federal agencies, legislation in Congress could achieve much more.

The bipartisan bill that the Senate took up this month aims to reduce the burden of regulation on small financial institutions, but also beef up protections for seniors and other consumers.

Among other measures, it would increase the threshold at which banks are subject to heavy federal supervision from $50 billion in assets to $250 billion. That would exclude all but the nation’s very biggest banks.

Even some who like the idea of a tough banking watchdog say the status quo is lacking. Linda Tirelli, a lawyer in New York who has been a fierce critic of the banks and is a supporter of Mr. Trump, called the consumer bureau — the focus of a public battle over who is in charge — “a portal to nowhere.”

“We file complaints regularly. The complaints are assigned case numbers, and that is it,” Ms. Tirelli said. “It’s a real sore spot for me because I was very much in favor of the agency as the promised watchdog. We need the C.F.P.B., but it needs to do much better.”