The report does not look to roll back the progress made since the financial crisis. Rather, it lays out a range of small, practical steps to help post-crisis rules work in practice without endangering the safety of the system.
Even the toughest bank critics admit privately they have been impressed with the report’s thoughtfulness and measured tone. It also seeks to “advance American interests” and the “global competitiveness of US financial institutions”. That is why Europeans should pay attention. If even a portion of these proposals were to come to pass, the cost of capital for US companies could fall.
First, Mr Mnuchin’s report recognises how dramatic an impact financial regulation has had on the effectiveness of monetary policy and credit transmission.
The report also suggests including a broader range of assets as liquidity. This reflects the reality that central banks now have a wider role as providers of liquidity and they also want to keep larger balance sheets.
Second, it argues that liquidity of markets matters. A healthy economy requires diverse sources of funding. Since 2009 all net expansion in corporate borrowing in the eurozone has come via bond markets, as banks were dieting. But thin markets are not effective ones. The Treasury report makes some suggestions to offer more flexibility to support market making. At a time when a brake has been put on capital markets union progress due to Brexit, efforts to foster safe and effective markets must be redoubled.
Third, the report demands that regulations are proportionate, support competitiveness and are grounded in a cost- benefit analysis. The US Treasury met with a range of bodies in order to provide a strong evidence base for the report. Policymakers rightly had to make quick judgments during the crisis and afterwards, but from now on we should balance speed with efficacy.
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