Project 2025: The Heritage Foundation’s Conservative Blueprint for Economic Reform for Trump Second Administration by Lois Alarcon

Author:Lois Alarcon
Language: eng
Format: epub
Published: 2024-11-07T00:00:00+00:00

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Chapter 9

The Financial Sector - Deregulation and Economic Growth

Reducing Financial Regulations

To supporters of Project 2025, reducing financial regulations isn’t about removing all oversight; it’s about giving the financial sector the flexibility to support growth without unnecessary obstacles. They argue that some existing laws and compliance standards, particularly those implemented after the 2008 crisis, impose high costs on financial institutions, stifling growth and innovation. These costs are often passed down to consumers in the form of higher fees, more restrictive lending practices, or fewer options. Proponents believe that by updating or eliminating certain regulations, banks will not only improve their own efficiency but also offer better service and more competitive options for consumers.

Take, for example, the capital reserve requirements imposed by Dodd-Frank. This legislation requires banks to hold a significant portion of their capital in reserve to safeguard against potential losses. While this mandate aims to increase stability, some argue that it limits banks’ lending power. The result is that institutions, especially smaller ones, are unable to expand their lending portfolios as much as they could if reserve requirements were less stringent. Project 2025 advocates see this as a barrier to small businesses that rely on bank loans to grow. They believe that by revising reserve requirements—allowing for flexibility based on a bank’s size, financial health, and risk management capabilities—these institutions could boost local economies through increased lending.

Moreover, proponents highlight how reducing regulations could ease the administrative burden on banks. Compliance with stringent regulations requires resources, including dedicated teams and costly technologies to track and report on various metrics. Smaller community banks, which serve local populations, often face disproportionate costs due to these compliance requirements. While larger institutions have the resources to absorb these costs, smaller banks may struggle, potentially reducing their ability to compete or even survive. Project 2025 advocates for scaling back on regulatory requirements for community banks and credit unions to ensure they can continue to serve their communities effectively, providing essential services like small business loans and personal checking accounts.

Project 2025 also envisions an environment where reduced regulatory pressure spurs innovation within the financial sector. Proponents argue that a simplified regulatory landscape would encourage financial institutions to explore new technologies, such as blockchain and digital payments, that could reshape banking practices. Financial technology companies (fintechs), which often operate outside of the traditional regulatory framework, have made significant strides in areas like peer-to-peer lending, digital wallets, and real-time payments. Many banks feel constrained by regulations that limit their ability to compete with these newer, more agile fintech firms. Project 2025 supporters believe that by relaxing certain restrictions, traditional banks could leverage fintech tools, enhancing service delivery and reaching underbanked populations more effectively.

Risk vs.

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