Throughout the last quarter of the 20th Century and even into the 21st, the American economy was like a Harley Davidson motorcycle – powerful and often lapping the global competition.
Under President Barack Obama, coming out of the 2008-9 financial crisis, however, the American economy ran less like a Harley and more like a moped, puttering along. Where once Americans were used to routine three percent or higher quarterly and annual economic growth, under Obama, the “new normal” was more often than not anemic one to two-percent growth.
For the first time in a long time, we are seeing significant economic growth, the type of growth that confirms real job creation and better wages. This is in no small part due to the policies of President Trump and his administration. But in the coming days, Secretary of the Treasury Steven Mnuchin and his department have the choice of revving that American economic engine or throwing sand in the gears that could impose onerous regulations on American business, limit competition in financial services, and increase financial product costs on consumers and businesses large and small.
Here’s the issue: when Obama and the Democrats passed the far-reaching Dodd-Frank financial regulation legislation, they created something called the Financial Stability Oversight Council (FSOC).
FSOC’s purpose is to do what Democrats want government to do: regulate without accountability to the American people. Indeed, Dodd-Frank gave the Treasury-led FSOC sweeping powers to designate companies as “systemically important financial institutions” (SIFIs), thus subjecting them to heavy banking regulations by the Federal Reserve, even if the firm is not a bank. It’s no surprise that the Federal Reserve was chosen to spearhead the regulatory onslaughts FSOC designations bring about – it is the regulator perhaps least accountable to the American people.
Rather than American interests, FSOC’s actions were been driven by the Switzerland-based Financial Stability Board, a global council of regulators who are not accountable to the U.S government or its citizens. FSOC’s insurance expert even spoke out about the process, expressing alarm that the U.S. regulator’s decisions were “interconnected” with FSB’s. FSOC pushed ahead anyway, declining to consider the huge costs that layering unworkable federal bank regulations on already state-regulated insurers would have on U.S. consumers. The net costs of each designation could reach $8 billion.
Just as duplicative, nonsensical Dodd-Frank regulations are forcing hundreds of community banks to close and appealing banking services to be shelved, businesses are seeing the same kinds of issues with FSOC: the costs of layering federal bank rules on state-regulated insurers are passed to consumers. Yet FSOC’s governing procedures allowed U.S. consumer interests to be steamrolled as SIFI designations were made. Although FSOC’s insurance expert spoke out about the process, expressing alarm that the uber-regulator’s designation decisions are “interconnected” with FSB’s, FSOC pushed ahead.
We’re ten months into the Trump administration and Secretary Mnuchin has still not reined in FSOC by scrapping the weak Obama-era guidance document that helps enable its unaccountability. This is despite the fact that, as ten GOP senators made clear in a letter to Secretary Mnuchin in March, FSOC’s designation procedures violate President Trump’s Executive Order on financial regulations.
Worse, Secretary Mnuchin’s Treasury department is continuing an Obama-era defense of FSOC’s sweeping powers in court. After its designation, MetLife sued FSOC arguing that the designation process violated the law. MetLife’s arguments were clear and similar to criticism about FSOC overall: that the review under which FSOC goes after its prey is unclear at best, secretive at worst, violates due process, and is made without a thorough analysis of costs/benefits.
In 2016 a federal judge agreed with MetLife, tossed out its designation, and ruled that the designation process is “fatally flawed.” But Obama Treasury lawyers appealed the ruling, and now Mnuchin’s team continues the appeal, creating uncertainty for businesses and costs for consumers, while enabling U.S. sovereignty to continue to be undermined.
Secretary Mnuchin must change course soon. Fortunately, he can do so easily.
First, Secretary Mnuchin must order his lawyers off and let the MetLife ruling stand. Doing so will ensure that FSOC cannot put in place massive regulatory shifts without considering costs to the American people and letting U.S. companies have a fair safe in the process. If Secretary Mnuchin doesn’t act soon, a far-left appeals court largely made up of Democrat appointees will have the final call. Unsurprisingly, his ongoing failure to drop this misguided appeal has “frustrated” allies of the President.
Second, in February, President Trump requested Secretary Mnuchin examine flaws with FSOC’s SIFI designation process. In his response to the President, due in the days ahead, Secretary Mnuchin should announce his intent to rein in FSOC’s authority by scrapping the 2012 Obama-era FSOC guidance, ending firm-specific designations, and endorsing House Financial Services Committee Chairman Jeb Hensarling’s bill to end FSOC’s designation powers. By doing so, Secretary Mnuchin can put in place a plan to put responsibility for financial regulation back where it belongs – in the hands of the American people.
Back when then-Senator Chris Dodd was touting his financial regulation bill, he said, “No one will know until this is actually in place how it works.” Unfortunately, as with Obamacare, we have a pretty good idea: fewer banking options for consumers, higher banking fees for fewer services, and taxpayer-funded bailouts in the offing under policies set overseas rather than here at home. For the sake of our economy and our fundamental freedoms, Secretary Mnuchin can, and should, roll back FSOC’s overreach to fulfill the promise made by his President and the prospects for America’s economy.