Trump Weakens Key Rule Meant To Prevent The Next Financial Crisis

Michael Vadon / CC-BY-4.0/ Flickr
William James

The Trump administration proposed removing non-banking institutions from the purview of the Dodd-Frank financial regulation law, freeing systemically important firms from the financial crisis-era legislation, according to the Washington Post.

Fed Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin said: “these amendments amount to a substantial weakening of the post-crisis reforms.”

The proposal has been attacked by other top government personalities, including former Treasury secretaries Timothy F. Geithner and Jack Lew, and former Federal Reserve chairs Ben S. Bernanke and Janet L. Yellen.

Dodd-Frank, passed in the wake of the 2007 financial crisis, was aimed at equipping the government to control systemic threats to the country’s banking sector.

The proposed changes come amid the rapid expansion of leveraged loans, which are extended to companies with high-debt, a phenomenon some have compared to the subprime mortgage crisis.

Leveraged loans grew 20.1 percent to $1.1 trillion last year -- faster than any other type of household of corporate debt, according to the Federal Reserve. This expansion has largely been driven by high-risk borrowers, says the Washington Post.

Powell has denied the growth of these instruments puts the country at risk for a crisis like that of 2007, saying U.S. banks are better capitalized than they were at that time, making them less vulnerable to a potential leveraged lending-driven collapse.

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