President Donald Trump signed executive orders last week to roll back the orderly liquidation authority to bail out “too big to fail” banks and put a moratorium on designating systemically important financial institutions.
Both provisions were instituted under Dodd-Frank.
Trump directed Treasury Secretary Steven Mnuchin not to use orderly liquidation authority (OLA) while the administration analyzes whether OLA encourages excess risk-taking and exposes taxpayers. “He (Trump) will direct us not to use OLA unless required by law, in consultation with him. So, in the event that there is a significant emergency and we do need to use it, we have a way of doing it,” Mnuchin said Friday.
Also, Trump called for a 180-day moratorium on new systemically important financial institution, or SIFI, designations while the Treasury Secretary reviews the Financial Stability Oversight Council’s process for designating non-bank financial institutions as systemically important.
The moves drew mixed reviews in Congress.
“Democrats promised the American people that Dodd-Frank would end ‘too big to fail’ and bailouts, but with Dodd-Frank the big banks got even bigger and bailouts are enshrined into law. Dodd-Frank actually gives unelected Washington bureaucrats the power to meet behind closed doors and pick and choose which companies will be ‘too big to fail’ and which companies will be ‘too small to matter.’ Even worse, those anointed by the bureaucrats as ‘too big to fail’ are first in line to receive taxpayer-funded bailouts if they get in trouble. It’s absurd and unfair to hardworking taxpayers,” said House Financial Services Committee Chairman Jeb Hensarling (R-TX).
Hensarling said Trump’s executive orders are in line with provisions in the Financial Choice Act, the Republicans plan to replace the Dodd-Frank Act. The Financial Choice Act would replace the OLA with a new chapter of the bankruptcy code designed to handle the failure of a large, complex financial institution.
“President Trump deserves tremendous praise for taking decisive action to protect taxpayers and our economy. He pledged to dismantle Dodd-Frank, and his actions today are another significant step towards ending the Dodd-Frank mistake that has given Washington bureaucrats more power to politically control our economy,” he said.
In addition, the Financial CHOICE Act eliminates the government’s authority to anoint large financial institutions as “too big to fail” by repealing the Financial Stability Oversight Council’s discretion to designate firms as “systemically important financial institutions.”
U.S. Sen. Sherrod Brown (D-OH) – ranking member of the Senate Banking, Housing, and Urban Affairs Committee, and a member of the Finance Committee – blasted the president’s actions.
“After the 2008 financial crisis almost destroyed our economy, Wall Street reform put tools in place to protect working Americans from once again bailing out ‘too-big-to fail’ banks and financial institutions. Any actions to undermine these protections encourage Wall Street’s risky behavior and leave taxpayers and our economy exposed to another catastrophe,” Brown said.
“We should be working to lower taxes for hardworking families and workers across Ohio, not helping multimillion-dollar corporations cheat the system to avoid paying their fair share,” Brown said.
Trump is also expected to order Mnuchin to review all the tax rules the Treasury Department issued last year. Brown warned against efforts to make it easier for corporations to invert, or move their headquarters overseas on paper simply to avoid paying their fair share in U.S. taxes.