Sound Financial Policy

Americans’ financial privacy has been eroding for more than 50 years, often hidden in the details of complex policies. Congress can establish stronger financial privacy protections by eliminating many Bank Secrecy Act reporting requirements. If financial records are needed, law enforcement should be required to show probable cause to obtain a warrant—a reform that 83 percent of Americans favor.⁶ Shy of eliminating the Bank Secrecy Act or its reporting requirements, Congress could improve financial privacy by enacting inflation-adjusted reporting thresholds for remaining Bank Secrecy Act requirements as well as the Internal Revenue Code, eliminating exceptions in the Right to Financial Privacy Act, and establishing better public oversight for the Financial Crimes Enforcement Network.

Internationally, governments are increasingly working toward developing and launching central bank digital currencies (CBDCs), which are digital national currencies that are a direct liability of the central bank. But unlike paper dollars, a CBDC would offer neither the privacy protections nor the finality that cash provides to Americans. Launching a CBDC risks ending financial privacy, restricting financial freedom, undermining free markets, and weakening cybersecurity. Congress should prohibit the Federal Reserve and the Treasury from issuing a CBDC.

Cryptocurrencies remain subject to regulatory uncertainties that hamper their development, along with innovation more broadly. This condition potentially pushes entrepreneurs away from the United States and limits Americans’ ability to take advantage of these advances. Congress should create a pro-competitive regulatory framework for stablecoin issuers; provide a clear, practical test for determining whether a crypto project is decentralized; and clarify that securities laws do not apply to decentralized cryptocurrency projects. Congress should also avoid applying punitive tax rules to the crypto ecosystem and, at the very least, remove capital gains taxes applied to alternative currency use.

Congress should ensure that financial regulators do not function as central planners deciding which enterprises are worthy of capital, especially in the name of environmental, social, and governance policy. To achieve this goal, Congress should clarify the scope of mandatory securities disclosures and shrink bank regulators’ responsibilities, thus limiting the extent to which environmental, social, and governance policy can politicize financial market regulation without providing clear benefits. Congress should clearly state that disclosures are limited to the type of information relevant to a company’s prospects for financial success (as originally contemplated by the 1933 and 1934 securities acts) and repeal the sections of the Dodd-Frank Act that direct the Securities and Exchange Commission to promulgate the conflict minerals and pay-ratio disclosure rules. Congress should also require banking regulators to consider solely economic and financial factors when promulgating regulations, rather than factors that might affect the public’s view of a bank, such as the bank’s so-called reputational risks.

So long as Congress is inclined to delegate responsibility for conducting monetary policy and limiting financial instability to the Fed, lawmakers should do more to improve the Fed’s performance. For instance, Congress can narrow and clarify the Fed’s legislative mandate and require that the Fed implement rules-based monetary policy. It can also level the field on which the dollar competes with other potential means of payment so that the Fed faces competitive pressure to preserve, and perhaps enhance, the US dollar’s attractiveness as both a domestic and an international exchange medium. A more vibrant financial sector would complement a sounder monetary policy framework, thus providing more economic opportunity for millions of Americans.

Congress should enact an exemption to securities registration for equity offerings that raise funds below a certain threshold, such as $500,000 per year. It should also focus on decreasing the barriers to eligibility for accredited investor status. Congress could, for example, consider investors advised by financial advisers who meet the current accredited investor definition as being accredited themselves.

Even if Congress repeals the 2010 Dodd-Frank Act in its entirety, a dysfunctional regulatory framework would remain. Nonetheless, the legislation represents the most recent large-scale expansion of federal regulatory power, and it solidified the harmful view that federal regulators can and should prevent people from losing money in financial markets. Among its many faults, the Dodd-Frank Act provides a false sense of security by conferring an aura of safety for firms that play by the act’s rules. It should be repealed in its entirety. Congress should also eliminate duplicative federal agencies, narrow Fannie Mae and Freddie Mac’s focus to the financing of primary homes, revoke Fannie and Freddie’s exemption from the requirement to register their securities offerings, limit the Federal Housing Administration’s single-family insurance portfolio to first-time homebuyers, shrink the Securities and Exchange Commission’s scope to regulate money market mutual funds, and apply a pro-innovation policy framework for the use of artificial intelligence in financial services.