Fed Proposes Rule Rollback for All But Biggest Banks

Powell discussed banking regulations. We want the strongest regulation, that the highest standards to be applied to the very large financial institutions that are systemically important. As we moved down the food chain to the regionals and then the medium sized banks, and then into the smaller community banks, we want to make sure that we're tailoring regulation substantially at each step of that. Joining me is Robert Howckety, professor

at Cornell University Law School. So, Bob, now, there will be a tiered system for bank regulations that will depend not only on total assets, but on other risk factors as well. Will you explain how the system will work? Yeah? So it's it's actually kind of surprising. I think Chairman Powell has to some extent mischaracterized, UM, what the nature of the proposal is that proposed rule change is that

was announced yesterday. Right. So originally what we were, what we did after the crash, right with John Frank, was we would say we said, basically, all banking institutions with assets in excess of about fifty billion would be subject to some heightened credential standards, in particular in the realm

of capital regulation UH and liquidity regulation. UM. Then, as we talked about last spring, UM, the Congress UH and Mr Trump changed the rules of their last spring by raising that threshold to two d fifty billion, right from fifty billion, So they quintupled it right now. UM. What they did was and they gave the Fed UH sort of instructions to UM sort of change the credential rules that would apply sort of in light of that new

set of standards. But we were given to think that at least they would stay high, right, stay high for the banks that were two hundred billion and larger. But what's really quite most intriguing I think about the FED proposal announced yesterday was that they're actually going to relax the capital standards and liquidity standards even for the banks

with assets between two hundred fifty and seven hundred billion dollars. So, in other words, the sort of tiered system that Mr Powell was talking about is in a way a kind of a distraction. In a way, it's a kind of a side show, because the thing that's most remarkable and surprising is the fact that they're relaxing the standards even for the largest banks. So does we does weakening the rules even for banks that are not considered systemically important

pose a risk to the system? And what about for banks that are? Yeah, I think, uh, it only proposed poses a significant risk to the system. Right to relax the capital standards and the liquidity standards for the mega banks, right the two hundred billion and larger um. I think it also I think adds significant risk to the system. Uh, to lighten the regulatory load for the institutions between fifty

and two hundred fifty billion as well. In other words, I think that the legislation that was pasted last spring that we talked about was itself also a move in the wrong direction. I think it's a bit of a mistake to describe banks that have a hundred billion or a hundred fifty billion dollars in assets as being small community banks. These are huge institutions. They're simply a bit smaller than the two billion dollar institutions. So I think you add risk of the system even by doing that.

And so we were moving in the wrong direction even last spring. But again, the surprising thing about yesterday is that we're learning the FED wants to go even further in the wrong direction, even with respect to those mega banks with assets under management of over two Well, there's also apparently more streamlining and tweaking of regulations in the works. Tell us about the momentum that financial regulators seem to be gaining and the new what maybe happen next? Yeah, So,

I mean the trend is sort of predictable. Um, I think the only thing that might not have been predicted was just speed with which it has sort of commenced and then with which it has been proceeding ever since. It commands right, so we seem to be relaxing again liquidity standards and capital standards, which are probably the most

important macroprudential regulatory tools that we have. In addition of course, we're rolling back the regulations in the realm of consumer financial protection, which not only is important, of course to ordinary James and Joe's like you and me, but also is systemically important because as we know, right the most toxic assets that ultimately cause a financial system to implode often are those that are extended in predatory ways that would normally be prohibited if we had actual, you know,

strong consumer protection standards still in place. But as you as you know, of course, Mr mulvaney effectively worked a coup in taking over the CFPB about a year ago and has basically dropped most of the enforcement actions that it had underway. And now we have actual statutory changes and regulatory changes a foot, essentially repealing or eliminating particular regulations that the CFPB would have had the jurisdiction to

enforce in the first place. So that's yet another way in which I think we're really heading in the wrong direction, and at an accelerated pace that I think is quite ominous. The Federal Reserve and the Office of the Control of the Currency are independent bank regulators. How much of the easing of regulations is coming from within those agencies, and how much from pressure from without. So that's always a somewhat tough call, because the the pressure from now without

is sort of hard to measure. As you had. These are independent agencies, and so they are nominally or you know, strictly speaking, uh, not subject to pressures that are imposed by Congress or by the President once they're in office. But I think it would be unrealistic to think that they're not affected, um by say, constant hearings or constant haranguing by a president or by members of Congress or

what have you. So it's possible that the pressure that's being applied by by Republicans and Congress and by Mr Trump himself and his Treasury departments are having some effect. But it's also, of course possible that these people themselves, right, the people in the agencies are a bit more of a deregulatory persuasion, if for no other reason than that a growing number of them are, of course appointees of Mr. Trump's.

So mid terms are coming up, Bob. If the Democrats take the House or the Senate in the midterms, will that stop or slow the deregulatory efforts. I think it will, uh, And I have a somewhat idiosyncratic reason for thinking so that I haven't seen out in the press yet, So as you know, I'm sort of metabolically optimistic. UM, So you might you might want to sort of take this with a grain of salt. But I actually think we're going to that the Dems are going to take the

House and the Senate. I think when that happens, Mr Trump is going to become a kind of Democrat. We know he doesn't have principles, right, He's a very pragmatic would be the nice way of saying it. Opportunistic would be the somewhat lass nice way of saying it. I think Mr Trump, keen on leaving a legacy, UM, is going to sound increasingly like a Democrat once the Congress

change his hands. And at that point, Um, the pressures on the regulators will be of a decidedly different sort than they've been over the last couple of years, and that, at at least at the margin, I think, will slow the rate of the regulatory momentum that we've seen gathering steam over the last couple of years. I'm almost speechless, Bob, but not quite so. So what about just we have about forty five seconds here? Will will democrats. If they take control and they start being in charge of the

banking committees, etcetera. Will that have any effect about thirty seconds? Yeah, it does have an effect. Again, it's hard to measure it, but you know, the regulators are not completely autistic, right. They hear the pressures, they hear what people are saying, what people are thinking. And if most of the pressures and most of the thoughts that are being expressed come from a pro regulatory angle, um, that can't help but affect them. All right, Thanks so much, Bob. As always,

that's Robert Hockety. He is a professor at Cornell University Law School. Robert Bauer is the man accused of killing eleven people in a Pittsburgh synagogue, pleaded not guilty in federal court today to forty four counts, including murder and

hate crimes. Joining me as former federal prosecutor Robert Mint's a partner McCarter in English, Bob tell us about the hate crimes he's charged with and what prosecutors will have to prove to convict him of those, or well, the history of hate crimes really starts in UH nineteen one Congress past the first hate crime statute, and it basically makes it a crime to use or threatened force to wilthy interfere with any person because of their race, color, religion,

or national origin. So it's it's an interesting statute because generally criminal statute don't look to the motive behind a killing or an act, and they simply look to the conduct. But in this case hate crimes, procecutes have to prove that not only was somebody murdered, but they were murdered um because of their their gender, because of their race, because of their religion, and so it really goes to the motive of the killing. And in this case, the motive,

according to procecures with anti Semitism. The um the gunmen shouted out death to Jews or something to the out of fact as he was shooting allegedly in the temple, and that's what they will rely upon in order to prove those charges. Death penalty cases are rare in federal court, but here federal prosecutors say they are pursuing the death penalty, explain how that affects the trial itself. For example, the

selection of a death penalty qualified jury. Sure, well, as you said, June death penalty cases are relatively rare in federal court. Only three people have been executed since the federal death penalty was reinstated in UM And ultimately, it's important for people to remember that the decision about whether a defendant will receive death or life in prison is

up to the jury. Uh So that means that when the jury is impaneled UM their additional questions that have to be asked to those jurors to make sure that jurors can approach that decision with an open mind, and jurors who have a moral aversion to the death penalty regardless of the facts of a case UM will not be permitted to sit on that jury. So it takes time for both the defense and prosecutors to arrive with

the jury that they think can be fair. And if you're the prosecutor, you want to make sure it's somebody who is willing to apply the death penalty if they believe it's warranted under the facts of the case. So if he's found guilty of the crimes that carry the death penalty, there will be a death penalty phase and the jury will hear from witnesses, including the victims. The Washington Boast has a story out today that some rabbis

oppose the death penalties even in this case. How might that way into the jury's decision into the presentation, Well, it does weigh in. Prosecutors are always going to listen to victims as they put their case together, and on a question of whether to seek the death penalty, the victims will be considered, but ultimately the decision is with the Department of Justice and with prosecutors, because prosecutors are of course representing the entire country, not only the victims

of the crime. But for example, in the Dylan Roof case where the white supremacist was sentenced to death last year for hate driven crimes, that was a case where families of those victims also did not want them to be executed because of their Christian beliefs. So it's something prosecutes will have to consider. But ultimately the decision about whether the charge and seek the death penalty will be

with prosecutors and of course jury. The jury will ultimately make that determination, but the state is also charging him, and the Allegheny County District Attorney has also said he will seek the death penalty. What's the point of having a state trial after a federal trial. That's a good question. A lot of people are are perplexed by that. Um. The reason that there is a state trial as well is because these crimes uh constitute violations of both state

and federal law. So the state has a basis to bring these charges as well, and often those charges are brought in the state after the federal charges, just to ensure that if ultimately the federal charges are overturned for any reason, that there are these other charges out there that will ensure that the defendant remains in jail, and ultimately it maybe the state charges on which he is

um sentenced instead of the federal charges. But it's important to also note that under the death penalty process, the federal system is more will move more expeditiously, because a death penalty conviction on the state level runs through the appeals process on the state level and then has a

complete second layer of appeals through the federal system. Through convicted of only the federal death penalty, it only goes through one layer of appellate review and moves a little bit quicker, but in either case the process is slow. Question about the proceeding this morning, his federal public defender said, he pleaded not guilty quote as is typical at this stage of the preceding. It is typical, but stay think

it is not so typical. Was that just information or was he signaling a change of plea pros possibly we have about forty seconds here. Well, you're right, Jim is not typical. Uh, it may be that he's trying to signal the prosecutors that he's looking to cut some kind

of a deal. Often in those cases, the role of the public defender or the defense lawyer is simply to try to save his client's life and try to see whether he can convince prosecutors to accept the guilty plea that will only result in life in prison as opposed to the death penalty. Thanks so much, Bob. That's Robert Mens. He's a partner McCarter and English, a former federal prosecutor.

Thanks for listening to the Bloomberg Law Podcast. You can subscribe and listen to the show on Apple podcast, SoundCloud, and on Bloomberg dot com slash podcast. I'm June Brosso. This is Bloomberg