Capitol Building by Andrew Malone is licensed under CC BY 2.0.

With Election Day about four months away, pundits and policymakers are already deliberating the types of policy proposals they wish to pursue going into next year. On the banking front, a litany of regulatory and legislative reforms is needed in the wake of the current administration’s unjust regulatory agenda. These reforms would rein in the administrative state while simultaneously enabling a free market banking sector that elevates the quality of service to consumers, borrowers, shareholders, and businesses of all sizes. 

In certain cases, Congress should codify reforms in federal statute first to prevent the executive branch from abusing its authority. One of the problems with contemporary banking regulation is that the executive branch has taken on the role of the administrative state—with unelected bureaucrats acting as a fourth branch of government. Elected officials in Congress make the laws of the land, not the executive branch. 

The recent promulgation of the Basel III Endgame proposal is a prime example of the administrative state’s overreach. The bank capital rule, which is the U.S. regulatory implementation of Basel III Endgame, directly circumvents Congress’s authority to write laws that govern U.S. banks. 

Basel III was not a creation of Congress, but the brainchild of the Basel Committee on Banking Supervision—an intergovernmental arm of the Bank for International Settlements composed of regulators from around the world. The Basel Committee and its regulatory frameworks have no legal authority in the U.S. However, U.S. regulators have been happy to indulge and, in some cases, apply even stricter standards without providing the necessary empirical evidence to justify such onerous regulations. 

The executive branch needs to remain within its remit. Too often, regulatory agencies, such as the Federal Reserve (Fed), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Consumer Financial Protection Bureau (CFPB) propose congressionally unauthorized rulemakings (the bank capital rule being one of them). Fortunately, the affirmation of the major questions doctrine and the repudiation of the Chevron doctrine both further reassert the separation of powers among the three branches of government. Federal regulators will no longer be able to unilaterally interpret ambiguous statutes and promulgate regulations that vaguely align with statutory authority. The executive branch will not be able to issue economically significant rules unless explicitly authorized by Congress. If a rule is disputed, the judiciary, not the agency, will be the sole entity assigned to interpreting its alignment with Congress’s intent. This rightly reaffirms the constitutional powers and limitations afforded to each branch of the federal government. The new case law will help reduce the administrative state’s power and strengthen the banking sector and financial markets in the U.S. for years to come.  

Ideally, a new administration would first pause any pending rules, guidance, supervisory letters, etc., to reassess and propose new light touch regulation that is firmly based on statutory authorizations. Below is a broad list of banking reforms that a new administration and Congress should consider.

If you would like to read the comprehensive list with more detailed descriptions, click here.

LIST OF REFORMS:

  • Rescind mergers and acquisitions (M&A) proposals from the Fed, FDIC, and OCC.
  • Require M&A applications to be approved within 120 days of filing. 
  • Stop conditional approval of mergers based on future activities.
  • End weaponization of the Community Reinvestment Act. 
  • Remove the regulators’ stranglehold on arbitrary bank examination metrics. 
  • Compel regulators to strictly follow legal precedent when enforcing cease and desist orders for unsafe and unsound practices.
  • Clarify that bank examiners are not authorized to scrutinize banks for compliance with federal consumer protection laws. 
  • Enact general transparency with regard to banking rules and requirements.
  • Prohibit regulators from using guidance documents to enforce new rules.
  • Repeal Method 2 surcharge for global systemically important banks (GSIBs).
  • Rescind rule requiring midsized banks to issue long-term debt (LTD).
  • Enact legislation that codifies prohibitions on “Operation Choke Point” activities. 
  • Repeal the Durbin Amendment as enacted in the Dodd-Frank Act. 
  • Prohibit the Fed from implementing changes to the debit card interchange fee cap without Congressional reports, testimony, and publication of quantitative analysis. 
  • Eliminate the cap on non-brokered reciprocal deposits.
  • Realign the Collins Amendment with Congress’s original intent. 
  • End the FedNow project.
  • Eliminate duplicative consumer finance examination among regulators.
  • Force regulators to report to Congress on their interactions with the Basel Committee on Banking Supervision, International Monetary Fund, Financial Stability Board, and Network for Greening the Financial System.
  • Enact legislation to prohibit regulators from requiring government models.
  • Eliminate reliance on Fannie Mae and Freddie Mac to backstop the U.S. mortgage market. 
  • Eliminate the provision of the Dodd-Frank Act permitting CFPB enforcement authority over federal consumer financial laws. 
  • Make clarifications to unfair, deceptive, or abusive acts or practices (UDAAP) principles.
  • Subject CFPB to congressional appropriations.
  • Enable more transparency with the Fed and FDIC’s decisions on bank’s living wills. 
  • Amend 31 U.S.C. § 5318 and implement regulations to prevent the federal government from prohibiting banks from revealing suspicious activity reports (SARs). 
  • Ensure that the Fed, FDIC, OCC, and CFPB do not duplicate FinCEN and the Office of Foreign Assets Control’s (OFAC) statutory obligations.