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Trump drops first shoe on Dodd-Frank

Much-awaited executive order sets “core principles” of financial regulation

After much speculation and two preliminary swipes at federal regulation, President Trump issued a short Executive Order targeting the 2010 Dodd-Frank Act. After much speculation and two preliminary swipes at federal regulation, President Trump issued a short Executive Order targeting the 2010 Dodd-Frank Act.

Perhaps testimony to the frenetic pace of the first 100 days of the Trump administration, organizations began issuing responses to the new President’s Executive Order concerning the Dodd-Frank Act hours before the order was formally and publicly signed. It was several hours after the signing that the order was published in full on the Trump White House website.

The announcement had been telegraphed Thursday, Feb. 2, in press statements by Gary Cohn, director of the White House National Economic Council, and former president and COO of Goldman Sachs Group, Inc.

President Trump signed the order on Friday, Feb. 3. In two pages, totaling 417 words, the new leader officially launched his attack on the massive tome that is Dodd-Frank shortly after a gathering of business leaders ranging from JPMorgan Chase’s Jamie Dimon and Blackstone Group’s Steve Schwarzman to Elon Musk of Tesla and SpaceX to GM’s Mary Barra and IBM’s Ginni Rometty.

The latest tally on the American Bankers Association Dodd-Frank Tracker website indicates that as of mid-December 2016 there were 14,720 pages of Dodd-Frank related final regulations and guidance.

In January President Trump had said he would “do a big number” on Dodd-Frank, which has long been identified as a administration target.

At the meeting of executives, Trump, making reference to Dimon and other financiers in the room, said: “We expect to be cutting a lot out of Dodd-Frank, because, frankly, I have so many people, friends of mine that have nice businesses that can’t borrow money, they just can’t get any money because the banks just won’t let them borrow because of the rules and regulations in Dodd-Frank.”

Interestingly, the name of the act doesn’t appear anywhere in the order.

Digging into the text

In one section the order directs the Treasury Secretary to consult with member agencies of the Financial Stability Oversight Council concerning the “extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles.”

The stability group’s ten voting members include the Treasury Secretary, chair of the council; heads of the traditional banking regulators and the National Credit Union Administration; the chairman of the Securities and Exchange Commission and the chair of the Commodity Futures Trading Commission; the director of the Federal Housing Finance Agency; and an appointed independent expert on insurance.

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That’s nine. The tenth voting member is the director of the Consumer Financial Protection Bureau—ironical given that the future of CFPB and its current leadership remains unclear under the Trump administration.

6 core principles for reform

While Trump typically goes for the colloquial in speeches— and tweets with the most seasoned social media users—the order reads as if framed by a professional policy wonk. The document sets out core principles for Dodd-Frank reform, verbatim below:

1. Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth.

2. Prevent taxpayer-funded bailouts.

3. Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry.

4. Enable American companies to be competitive with foreign firms in domestic and foreign markets.

5. Advance American interests in international financial regulatory negotiations and meetings.

6. Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

The order follows on an Inauguration Day regulatory freeze and a Jan. 30 “one new reg in, two old regs out” executive order. Both are believed to not involve most financial regulators, though there are some questions on the status of CFPB following a 2016 court case.

“Reaction” and reaction

As indicated earlier, some commentary on the new initiative was pushed out to the media in advance of the signing of the order.

“This Executive Order is likely to be step one in a longer process of making sensible regulatory relief a reality,” Thomas Vartanian, a Dechert LLP partner who leads the firm’s financial institutions practice, said in an advance statement. He added that it is “just sound public policy to evaluate seven years after inception the impacts of the Dodd-Frank Act, particularly since no cost benefit review was done before it was enacted, and none has been done since.”

Vartanian, a former regulator, added that “the rubber hits the road with the regulatory agencies; tell me who the regulators are going to be and I’ll tell you what the regulatory policy will look like.” [Read “D.C. veteran assesses chances for bank law reform”]

Other comments came out after the signing.

Among comments from banking trade associations:

The Independent Community Bankers of America stated:

“Community banks strongly support pro-growth regulatory relief from one-size-fits-all regulations designed to address the nation’s largest banks. Onerous regulatory burdens on community banks are stifling lending and innovation in local communities, hindering economic and job growth across the nation. ICBA’s Plan for Prosperity regulatory relief platform would reform community bank overregulation by instituting rules that are tiered and proportionate to these local institutions’ size and risk profile.” Read entire statement

ICBA was the only banking group to be represented at the Rose Garden signing of the Dodd-Frank Act.

Meanwhile, the American Bankers Association stated:

“While banks have continued to meet the needs of their customers, clients, and communities to the best of their ability, they have faced tremendous headwinds that came with a sharp increase in highly prescriptive government regulation and the sheer weight of more than 24,000 pages of proposed and final Dodd-Frank rules…

ABA endorsed “a sensible and careful review of Dodd-Frank and other financial regulations…” Read entire statement

The Financial Services Roundtable, speaking along similar lines, added its hopes to “advance long overdue housing finance and GSE reform; improve the Financial Stability Oversight Council’s process for designating systemically important financial companies; increase accountability and transparency for regulators in areas such as consumer financial protection; adopt appropriate capital and regulatory standards; and more. Read entire statement

Opposition to Trump order

Meanwhile, consumerist groups opposed the Trump effort.

 The Consumer Federation of America stated:

“Less than a decade ago, Wall Street and our economy were in freefall. Toxic mortgages peddled illegally helped to cause the most severe financial crisis since the Great Depression. Today’s actions by the White House are an ominous sign that amnesia has set in. … Wall Street needs a watchdog, not a lapdog.” Read entire statement

The Center for Responsible Lending stated:

“If this Administration has not learned from the mistakes that caused the 2008 economic crisis, they are doomed to repeat them. Lest we forget, lax regulation allowed Wall Street to back extremely reckless loans whose failure snowballed into a financial crisis and Great Recession. Tens of thousands of Americans lost their homes, around eight million Americans lost their jobs, and U.S. households lost trillions of dollars. Recent comments from the Administration and this upcoming executive order are a warning sign of a return to those dark days.” Read entire statement

Read President Trump’s Executive Order, “Core Principles For Regulating The United States Financial System”

Steve Cocheo

Steve Cocheo’s 38 years in financial journalism have taken him to all 50 states and nearly every corner of financial services in companies from fintech startups to community banks to regional and national giants. He is executive editor of Banking Exchange and digital content manager of www.bankingexchange.com. Previously he spent 36 years on the staff of ABA Banking Journal and 22 years concurrently as editor of ABA Bank Directors Briefing. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors. In 2017 he received three awards from ASBPE: National Gold, National Bronze, and Regional Silver. Two years ago he finally gave up his cherished Blackberry for an iPhone, recently tried Uber, and has made it by Citibike from Battery Park to the Washington Bridge… and back. Connect with Steve Cocheo and Banking Exchange on LinkedIn. Follow Banking Exchange on Twitter

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