IMPROVED FINANCIAL REGULATION

One of the priorities of the incoming Administration should be to restructure the outdated and cumbersome financial regulatory system in order to promote financial innovation, improve regulator efficiency, reduce regulatory costs, close regulatory gaps, eliminate regulatory arbitrage, provide clear statutory authority, consolidate regulatory agencies or reduce the size of government, and increase transparency.

Merging Functions. The new Administration should establish a more stream- lined bank and supervision by supporting legislation to merge the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Federal Reserve’s non-monetary supervisory and regulatory functions. U.S. banking law remains stuck in the 1930s regarding which functions finan- cial companies should perform. It was never a good idea either to restrict banks to taking deposits and making loans or to prevent investment banks from taking deposits. Doing so makes markets less stable. All financial intermediaries function by pooling the financial resources of those who want to save and funneling them to others that are willing and able to pay for additional funds. This underlying principle should guide U.S. financial laws.

Policymakers should create new charters for financial firms that eliminate activ- ity restrictions and reduce regulations in return for straightforward higher equity or risk-retention standards. Ultimately, these charters would replace government regulation with competition and market discipline, thereby lowering the risk of future financial crises and improving the ability of individuals to create wealth. Dodd–Frank Revisions. Congress should repeal Title I, Title II, and Title VIII of the Dodd–Frank Act.52 Title I of Dodd–Frank created the Financial Stability Oversight Council, a kind of super-regulator tasked with identifying so-called systemically important financial institutions and singling them out for especially stringent regulation. The problem, of course, is that this process effectively iden- tifies those firms regulators believe are “too big to fail.”53

Title VIII of Dodd–Frank gives the FSOC similarly broad special-designation authority for specialized financial companies known as financial market utilities.54 Title II of Dodd–Frank established the controversial provision known as orderly liquidation authority (OLA), the law’s alternative to bankruptcy for large financial firms. OLA was based on the faulty premise that large financial institutions cannot fail in a judicial bankruptcy proceeding without causing a financial crisis. It gives such companies access to subsidized funding and creates incentives for manage- ment to overleverage and expand high-risk investments.55 Congress should repeal each of these provisions to guard against bailouts and too-big-to-fail problems.56 Treasury plays a role in funding the conservatorships of Fannie Mae and Freddie Mac. It should work to end the conservatorships and move toward privatization of these massive housing finance agencies. This would restore a sustainable housing finance market with a robust private mortgage market that does not rely on explicit or implicit taxpayer guarantees.

Direct government ownership has worsened the risks that government-spon- sored enterprises (GSEs) pose to the mortgage market, and stock sales and other reforms should be pursued. Treasury should take the lead in the next President’s legislative vision guided by the following principles:

Fannie Mae and Freddie Mac (both GSEs) must he wound down in an orderly manner.

The Common Securitization Platform57 should be privatized and broadly available.

Barriers to private investment must be removed to pave the way for a robust private market.

The missions of the Federal Housing Administration and the Government National Mortgage Association (“Ginnie Mae“) must he right-sized to serve a defined mission.

ANTI-MONEY LAUNDERING AND BENEFICIAL OWNERSHIP REPORTING REFORM

The Financial Crimes Enforcement Network is a relatively small bureau within the Treasury Department with approximately 285 employees and a FY 2022 budget of $173 million.58 Although FinCEN makes a significant contribution to law enforce- ment efforts, it also does demonstrable, substantial and widespread economic harm because it: (1) is largely oblivious to those adverse economic effects; (2) conducts almost no meaningful cost-benefit analysis or retrospective review of regulations; (3) has been subject to extraordinarily lax oversight by both Congress and the Trea- sury Department; and (4) demands total transparency by those it regulates but is itself disturbingly and purposefully opaque. For example, FinCEN no longer issues an annual report59 and no longer publishes cash transaction report (CTR) data.

There were 2 .7 million suspicious activity reports (SARs) filed in 2021.60 The number of CTRs filed were approximately 10 times that number.61 In 2014, FinCEN anti-money laundering/countering the financing of terrorism (AML-CFT) rules cost an estimated $5 billion to $8 billion per year.62 Undoubtedly, this cost is now substantially higher both because of inflation and because the rules have become more onerous.63 Yet there is little evidence that this massive expenditure of resources is doing much good,64 and there is no evidence regarding which aspects of the AML-CFT regime are effective and which are not. The AML-CFT regime is a major contributing factor causing the decline in the number of small broker-deal- ers and the decline in the competitiveness of community banks. Congress must require FinCEN to annually publish data regarding:

lThe number of SARs filed; lThe number of CTRs filed;65

The number of AML-CFT convictions (similarly disaggregated); The number and aggregate amount of AML-CFT fines imposed and the type of institution upon which the fine was imposed; and Annual estimates of the aggregate costs imposed on private entities by the AML-CFT regime.67

Without this data, it is impossible for policymakers to make an informed judg- ment about the effectiveness of the AML-CFT regime. Congress should also require both FinCEN and the Government Accountability Office to undertake separate evaluations regarding which aspects of the AML-CFT regime are effective and which are not. FinCEN should be required to undertake a thorough retrospec- tive review of its regulations and various statutory requirements and report to Congress on its findings in a publicly available report. Anecdotes and assurances from FinCEN staff that all is well—but that even more onerous requirements are needed—are not enough.

Congress should repeal the Corporate Transparency Act, and FinCEN should withdraw its poorly written and overbroad beneficial ownership reporting rule. Both are targeted at the smallest businesses in the U.S. (those with 20 or fewer employees) and will do nothing material to impede criminal finance.68 The FinCEN

The number of AML-CFT prosecutions, disaggregating those in which the AML-CFT prosecution is stand-alone and in which the prosecution is an add-on count connected to other predicate crime;66 beneficial ownership reporting rule will impose costs exceeding $1 billion annu- ally and is exceedingly poorly drafted.69 FinCEN itself estimates that more than 33 million businesses will be affected and that costs will be $547 million to $8.1 billion annually.70

THE “EQUITY” AGENDA

Under the Biden Administration, the Treasury Department has appointed a Counselor for Racial Equity, established an Advisory Committee on Racial Equity, and created an office for Diversity, Equity, Inclusion, and Accessibility. All these should be eliminated. Treasury has created several new offices to promote “equity” and has made this its first of five strategic goals in its Fiscal Year 2022–2226 Strategic Plan. “Equity” is identified as a cross-cutting theme in 15 of 19 of the plan’s objectives.

The avowed purpose of these initiatives is to implement policies that delib- erately favor some races or ethnicities over others. The casual acceptance and rapid spread of racist policymaking in the federal government must be forcefully opposed and reversed. The next conservative Administration should take affirma- tive steps to expose and eradicate the practice of critical race theory and diversity, equity, and inclusion (DEI) throughout the Treasury Department.

These steps will include:

Identify every Treasury official who participated in DEI initiatives and interview him or her for the purpose of determining the scope and nature of these initiatives and to ensure that such initiatives are completely ended. Make public immediately all communications relating to the work of the Treasury’s critical race theory and DEI initiatives. Treat the participation in any critical race theory or DEI initiative, without objecting on constitutional or moral grounds, as per se grounds for termination of employment.

Expose and make public all training materials and initiatives designed to single out any race, ethnicity, or sex for special treatment. The Administration should eliminate the 25-member Treasury Advisory Com- mittee on Racial Equity.

CLIMATE-RELATED FINANCIAL RISK

Treasury has created a new departmental office, “Climate Hub,” and has made “combating climate change” one of the Biden Treasury Department’s top 5 principal goals. The next Administration should eliminate the Climate Hub Office and withdraw from climate change agreements that are inimical to the prosperity of the United States. The Climate Hub office “coordinates Treasury’s work to inform, guide, incen- tivize, and mobilize financial flows for climate mitigation and climate adaptation and supports the broader alignment of the financial system with a path to net- zero emissions by mid-century.“71 According to the Biden Administration’s Fiscal Year 2022–2026 Strategic Plan for Treasury, the fourth of five Treasury strategic goals reads:

Combat Climate Change

Economic growth and technological/scientific advance through human ingenuity are by far the best ways to prevent and mitigate extreme weather events.

Moreover, virtually all of the initiatives that the Biden Administration has adopted would, even if successful, have a de minimis impact on changing global weather patterns, in part because most nations—notably China—are not cooperating with climate summits and international agreements. Virtually all nations, for example, that signed the Paris Agreement73 have not met their treaty obligations. Such routinely violated treaties weaken the U.S. economy with no offsetting societal benefits. To that end, the next conservative Administration should withdraw the U.S. from the U.N. Framework Convention on Climate Change74 and the Paris Agreement.

The next Administration should use Treasury’s tools and authority to promote investment in domestic energy, including oil and gas. It should reverse support for international public- (and private-) based efforts promoting Environmental, Social, and Governance75 and Principles for Responsible Investment,76 both of which have badly damaged U.S. energy security.