President Donald Trump directed the Treasury secretary Friday to report to him within four months on laws and regulations that could rein in economic growth, hamper the competitiveness of businesses or narrow Americans’ ability to make financial decisions.
In an executive order, Trump said the Treasury secretary should consult with the heads of other federal regulatory agencies to determine what laws and regulations contradict what the order called “core principles” of regulation.
Trump’s order begins a sweeping review of financial regulation, particularly the 2010 Dodd-Frank law (PL 111-203), although it never mentions that law. The president signed the order while nearby stood House Financial Services Chairman Jeb Hensarling, R-Texas, who has frequently backed legislation aimed at repealing Dodd-Frank.
“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 and they can’t borrow money,” Trump said in a meeting Friday with corporate executives. “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.”
The order directs the Treasury secretary to consult members of the Financial Stability Oversight Council, or FSOC, a panel established by Dodd-Frank and tasked with identifying risks to the financial system.
Hensarling said in a statement that the order “closely mirrors” the Dodd-Frank repeal bill he wrote and his committee approved last year.
“The president’s action shows a desire “to end Wall Street bailouts, end ‘too big to fail,’ and end top-down regulations,” Hensarling said.
The immediate effect of Trump’s order is limited, but it could result in the Treasury soon dropping its appeal of a case against MetLife, an insurance company that has been deemed too big to fail. The Treasury may also be able to identify ways to relax regulatory enforcement. But because many of the Dodd- Frank regulations were required by Congress, lawmakers would have to reverse them or regulatory agencies would have to amend them.
One of Trump’s core principles is to avoid tax-payer funded bailouts of institutions deemed too big to fail. Many congressional Republicans, however, say that Dodd-Frank has encouraged the growth of the biggest financial institutions, making them too big to allow to fail.
Among the results of the Dodd-Frank law is closer regulatory scrutiny of large financial institutions. The government is currently appealing a court ruling that removed insurer MetLife from the list of institutions that are too big to fail. That appeal looks vulnerable to Trump’s memo.
Giving up on the MetLife appeal is one thing that “could happen very quickly,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. She added that Friday’s memo is otherwise more of a “statement of intent” by the president.
The Trump administration is also taking the helm of the FSOC. Steven Mnuchin, the Treasury secretary nominee, would lead that body. The Senate hasn’t yet voted on Mnuchin’s confirmation.
Rolling back the regulations mandated by the 848-page act is easier said than done. Congress would have to pass legislation to do most of the work and Senate Democrats appear to have the votes to stall or block legislation.
Dodd-Frank has led to more than 250 rules on everything from securities and futures trading to derivatives and residential mortgages. To amend many of the rules would require time-consuming processes by a cadre of independent agencies the new president does not yet control.
A new law would be required to unwind the core of the act, which includes intense regulation of the 35 banks with $50 billion or more in assets, the requirement for “living wills” on how a large, failed bank would be wound down, and the enhanced ability of the Federal Deposit Insurance Corp. to take over a failed bank.
But Trump’s action nevertheless drew praise from the financial industry.
“A sensible and careful review of Dodd-Frank and other financial regulations can and should strengthen those goals while unleashing the power of the banking industry — from small towns and communities to our nation’s financial centers — to fuel the increase in economic prosperity that we all seek,” said American Bankers Association CEO Rob Nichols. “We look forward to working in a bipartisan manner with the administration, Congress and bank regulators on policy changes that will keep banks strong and focused on providing the capital that is so essential to rebuilding our economy.”
Investment Company Institute president and CEO Paul Schott Stevens also backed Trump’s action. The ICI represents regulated investment funds.
“From the onset, [ICI] cautioned that provisions in Dodd-Frank – particularly the potential designation of regulated funds and their managers as systemically important financial institutions (SIFIs) – were inappropriate and harmful to fund investors,” Stevens said in a statement.
The Trump administration may also find parts of Dodd-Frank it wants to keep.
Mnuchin has expressed support for the act’s so-called Volcker Rule, which prohibits federally insured commercial banks from certain risky trading activity.
Republicans in Congress support the Federal Reserve’s intense scrutiny of the eight largest and most interconnected U.S. banks. There is also wide support, though, for loosening regulation on the more than 5,000 smaller U.S. banks.
Two of the major Dodd-Frank rule-writing agencies – the Securities and Exchange Commission and the Commodity Futures Trading Commission – are headed by five- member commissions that are each three members short. Once a Trump appointee gets on each body, there presumably would be a GOP majority that could begin the long process of amending an existing rule.
Troy D. Graziano, senior fellow in constitutional law at the conservative Pacific Legal Foundation, said it may be simpler for Congress to roll back Dodd-Frank under the Congressional Review Act. The CRA allows Congress to review rules submitted in the last 60 legislative days of a Congress, but that 60-day clock doesn’t start ticking until Congress is sent a report on the new rule.
Graziano, who helped write the CRA in 1996, said federal agencies often neglect that report requirement. To roll back the rules, the Trump administration could belatedly submit the required report, starting the 60-day review period, and allowing Congress to pass resolutions overturning those rules, he said.
“The administration should take its time,” he said.
But Alan Kaplinsky, a Ballard Spahr attorney who closely tracks the Consumer Financial Protection Bureau, an agency established by Dodd-Frank, is skeptical. “I think it’s moot because I’m pretty sure that the CFPB filed all the reports on time,” Kaplinsky said.
The order “betrays the promises” that Trump made to stand up to Wall Street, said Lisa Donner, executive director of Americans for Financial Reform, a group supporting Dodd-Frank’s regulatory framework.
“But the President does not have the authority to overturn laws or tell independent agencies what to do,” she said. “And it’s flat-out illegal for the agencies to change rules by fiat without public input.”