The White House has issued a new executive order that increases its influence over the Federal Reserve’s regulatory powers concerning big banks. The move grants President Donald Trump’s appointees greater control over independent regulatory agencies while ensuring that monetary policy decisions remain under the Fed’s full authority.
This policy shift underscores the administration’s broader efforts to reshape financial regulation, impacting major banks and independent regulatory agencies such as the Securities and Exchange Commission (SEC) and the Federal Communications Commission (FCC).
White House Asserts More Control Over Bank Oversight
The executive order, issued on Tuesday, clarifies that while the Fed maintains autonomy over interest rate decisions, its authority over bank regulation and supervision will now be subject to closer White House oversight.
“This order shall not apply to the Board of Governors of the Federal Reserve System or to the Federal Open Market Committee in its conduct of monetary policy,” the order stated.
This explicit provision seeks to reassure markets that the independence of the Fed’s monetary policy decisions—such as interest rate hikes or cuts—remains untouched. However, it tightens control over the Fed’s regulatory role, particularly in its oversight of large financial institutions.
“This order shall apply to the Board of Governors of the Federal Reserve System only in connection with its conduct and authorities directly related to its supervision and regulation of financial institutions,” the order further clarifies.
This distinction highlights the White House’s increasing influence over financial regulation, ensuring that oversight of the banking sector aligns more closely with the administration’s policies.
What This Means for Bank Regulations and Wall Street
The decision to bring bank regulatory oversight closer to the White House aligns with broader efforts by the Trump administration to restructure financial regulatory agencies.
Some of the key implications include:
- Stronger Executive Branch Oversight – Independent agencies, including the Federal Reserve, SEC, and FCC, will now submit major regulations to the White House’s Office of Management and Budget (OMB) for review.
- Increased White House Influence Over Banking Policies – The administration will have greater input into financial regulation, impacting how large banks operate and comply with oversight measures.
- Budget and Performance Management Controls – The OMB, led by Russell Vought, will establish performance standards and budget guidelines for regulatory agencies. This could result in funding cuts to certain regulatory initiatives, influencing their effectiveness.
- Potential Consolidation of Financial Regulators – Reports suggest that the administration is considering merging key banking regulatory agencies, including possibly folding the FDIC into the Treasury Department and consolidating it with the Office of the Comptroller of the Currency (OCC).
Consumer Financial Protection Bureau (CFPB) Faces Uncertain Future
The move to assert control over financial regulators comes alongside an effort to weaken the Consumer Financial Protection Bureau (CFPB).
Earlier this month, the White House ordered an effective halt on CFPB’s regulatory activities, reducing its ability to enforce consumer protection laws against big banks and lenders. This follows long-standing efforts by conservative policymakers to limit the agency’s power, citing concerns over regulatory overreach.
Additionally, reports from The Wall Street Journal suggest that discussions are underway to restructure other financial watchdog agencies without congressional approval.
Market Reactions and Policy Implications
The financial sector has responded cautiously to the executive order, as investors and analysts assess its long-term impact on banking regulations and Wall Street oversight.
Potential Benefits
- More Business-Friendly Regulations – The White House’s tighter control over financial regulation could lead to less stringent oversight and reduced compliance costs for banks.
- Increased Executive Accountability – Some business leaders argue that placing financial regulators under direct White House supervision ensures accountability and policy alignment.
Risks and Concerns
- Weakening of Independent Oversight – Critics warn that closer White House control over financial regulators could erode their independence, potentially increasing political influence over bank supervision.
- Uncertainty in Financial Stability Measures – Regulatory rollbacks could lead to weaker enforcement of risk controls, increasing concerns about systemic financial risks.
Federal Reserve’s Stance
Federal Reserve Chair Jerome Powell has yet to issue an official response to the executive order. However, Powell has previously emphasized the importance of the Fed’s independence from political influence, particularly in the context of interest rate decisions and financial stability oversight.
While monetary policy remains untouched, the Fed’s regulatory authority over banks will now be subject to greater scrutiny from the executive branch, raising questions about future financial stability measures.
What’s Next?
The new executive order marks a significant shift in how financial regulation is managed in the U.S. Moving forward, markets and policymakers will closely watch:
- How the White House influences regulatory decisions affecting major banks.
- Potential consolidation of regulatory agencies, including the FDIC and OCC.
- The future of the CFPB and its ability to enforce consumer protection laws.
- How the Fed navigates its dual role—maintaining independence in monetary policy while operating under new oversight in bank supervision.
Final Thoughts
As financial markets digest these changes, the long-term impact remains uncertain. While the Fed’s monetary policy remains independent, the executive branch’s increased role in bank regulation could reshape financial oversight for years to come.
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