A Financial System That Creates Economic Opportunities ...

U.S. D E PARTM E NT O F TH E TR EAS U RY

A Financial System That Creates Economic Opportunities Banks and Credit Unions

JUNE 2017

U.S. D E PARTM E NT O F TH E TR EAS U RY

A Financial System That Creates Economic Opportunities

Banks and Credit Unions

Report to President Donald J. Trump Executive Order 13772 on Core Principles for Regulating the United States Financial System

Steven T. Mnuchin Secretary

Craig S. Phillips Counselor to the Secretary

Table of Contents

Executive Summary

1

Introduction3

Review of the Process for This Report3

Scope of This Report and Subsequent Reports4 The U.S. Depository Sector5

Why Alignment of Regulation with the Core Principles is of Critical Importance6

Summary of Recommendations for Regulatory Reform10

Background

19

The U.S. Depository System21

The U.S. Financial Regulatory Structure24 Overview of Federal and State Regulators24 Regulatory Structure and Issues of Regulatory Duplication, Overlap, and Fragmentation28

The Dodd-Frank Act32 The U.S. Financial Crisis32 Overview of Key Objectives of Dodd-Frank32

Findings and Recommendations

35

Improving the Efficiency of Bank Regulation37 Capital and Liquidity37 Community Financial Institutions56 Improving the Regulatory Engagement Model61 Living Wills66 Foreign Banking Organizations68 Improving the Volcker Rule71

Providing Credit to Fund Consumer and Commercial Needs to Drive Economic Growth79

Consumer Financial Protection Bureau79 Residential Mortgage Lending92 Leveraged Lending102 Small Business Lending105

Appendices

109

Appendix A: Participants in the Executive Order Engagement Process109

Appendix B: Table of Recommendations121

Appendix C: Capital and Liquidity139

A Financial System That Creates Economic Opportunities ? Banks and Credit Unions iii

Acronyms and Abbreviations

Acronym/Abbreviation Term

ACICS

Accrediting Council for Independent Colleges and Schools

ALJ

Administrative Law Judge

AOCI

Accumulated Other Comprehensive Income

ATR

Ability-to-Repay

Basel

Basel Committee on Banking Supervision

Basel Committee

Basel Committee on Banking Supervision

BEA

Bureau of Economic Analysis

BHC

Bank Holding Company

Board

Board of Directors

C&I

Commercial & Industrial

CCAR

Comprehensive Capital Analysis and Review

CCyB

Countercyclical Capital Buffer

CDFI

Community Development Financial Institution

CECL

Current Expected Credit Losses

CET1

Common Equity Tier 1 Capital

CFPB

Consumer Financial Protection Bureau

CFTC

Commodity Futures Trading Commission

CLAR

Comprehensive Liquidity Assessment and Review

CID

Civil Investigative Demand

CO

Consent Order

CRA

Community Reinvestment Act

CRE

Commercial Real Estate

CRT

Credit Risk Transfer

CSBS

Conference State Bank Supervisors

Dodd-Frank

Dodd-Frank Wall Street Reform and Consumer Protection Act

DFAST

Dodd-Frank Act Stress Test

DTI

Debt-to-Income

EBITDA

Earnings Before Interest, Tax, Depreciation and Amortization

eSLR

Enhanced Supplementary Leverage Ratio

iv A Financial System That Creates Economic Opportunities ? Banks and Credit Unions

Executive Order

Fannie Mae FASB FBIIC FBO FDIC Federal Reserve FFIEC FHA FHFA FINRA FRB Freddie Mac FRTB FSB FSOC FTC G-20 GAAP GAO Ginnie Mae GSE

G-SIB HAMP HCAI HCR HMDA HQLA HUD HVCRE

Executive Order 13772 on Core Principles for Regulating the United States Financial System Federal National Mortgage Association Financial Accounting Standards Board Financial and Banking Information Infrastructure Committee Foreign Banking Organization Federal Deposit Insurance Corporation Board of Governors of the Federal Reserve System Federal Financial Institutions Examination Council Federal Housing Administration Federal Housing Finance Agency Financial Industry Regulatory Authority Board of Governors of the Federal Reserve System Federal Home Loan Mortgage Corporation Fundamental Review of the Trading Book Financial Stability Board Financial Stability Oversight Council Federal Trade Commission Group of 20 Generally Accepted Accounting Principles Government Accountability Office Government National Mortgage Association Government-Sponsored Enterprise, here refers to Fannie Mae and Freddie Mac Global Systemically Important Bank Home Affordable Modification Program Housing Credit Availability Index Horizontal Capital Review Home Mortgage Disclosure Act High-Quality Liquid Assets U.S. Department of Housing and Urban Development High Volatility Commercial Real Estate

A Financial System That Creates Economic Opportunities ? Banks and Credit Unions

v

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