U.S. Treasury Secretary Steven Mnuchin arrives to meet with China’s Finance Minister Xiao Jie during the IMF/World Bank spring meetings in Washington, U.S., April 21, 2017. REUTERS/Yuri Gripas
April 21, 2017
By Pete Schroeder
WASHINGTON (Reuters) – U.S. President Donald Trump will order the Treasury Department on Friday to examine two powers given to regulators to police large financial companies after the 2008 financial crisis, Treasury Secretary Steven Mnuchin said.
In his first visit to the Treasury building, Trump will sign two memos that analysts view as largely affirming existing priorities he has outlined.
One will temporarily bar 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.
The other memo will put a temporary halt to the use of “orderly liquidation authority” to unwind troubled financial institutions unless the president directs it in an emergency. Trump will order a review of this as well, Mnuchin said.
Trump has long said financial sector oversight could curb economic growth. While the two memos signal he is still interested, they overlap with an earlier executive order he 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 Inc and Prudential Financial Inc, are designated as SIFIs .
Banks with more than $50 billion in assets are automatically designated 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.
The government has never attempted to use its orderly liquidation authority, which empowers regulators to step in and help quickly unwind a failing financial firm in an emergency.
The memo will direct 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 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.
(Reporting by Pete Schroeder; Editing by Kevin Drawbaugh and Lisa Von Ahn)