Washington
In an executive order, Trump ordered a review of the laws and regulations that govern the U.S. financial system in an opening bid to upend 2010’s financial overhaul law, known as Dodd-Frank. The complicated legislation, which took months to negotiate, touches nearly every aspect of the way banks operate and includes hundreds of rules, some of which have yet to be implemented
“We expect to be cutting a lot out of Dodd-Frank,” Trump said during a meeting with business leaders Friday morning. “Because frankly, I have so many people, friends of mine, that had nice businesses, they just can’t borrow money … because the banks just won’t let them borrow because of the rules and regulations in Dodd- Frank.”
The prospect of another drawn-out battle over a Wall Street overhaul is being met tepidly by some financial executives, who are wary of reawakening populist passions. After being the target of so many attacks in the years after the financial crisis, many have begun to see their profits grow and stock prices surge again, and they have urged the administration to proceed cautiously. Adjusting to a new regulatory environment would be too costly, they say.
Trump has so far been vague about what he would do to the complex law: The language of his executive order did not even include the phrase “Dodd-Frank.” Instead, he instructed the treasury secretary to report back in 120 days on what rules promote or inhibit the administration’s priorities.
Dodd-Frank has had a profound effect on the financial industry, forcing banks to submit to yearly “stress tests” to prove they could withstand economic turbulence and draw up “living wills” that lay out how the banks could be dismantled without harming the rest of the financial system. One controversial component, called the Volcker rule, bars banks from trading in high-risk securities using their own capital, a practice that contributed to the last crisis. The rule also limited the ability of banks to hide exotic risky securities off the banks’ balance sheets, concealing the extent of the banks’ debts.
With Dodd-Frank still not fully implemented, critics have argued that Wall Street requires more oversight, not less. But Trump, who often attacked Wall Street during the campaign (and whose chief strategist, Stephen Bannon, has ripped into the big banks in the past), has adopted a different tone since taking office, offering to help the financial industry as part of a deregulatory agenda to boost the economy.
During the meeting with more than a dozen chief executives, Trump noted that there were several bankers in the room, including Larry Fink, chief executive of the massive investment firm BlackRock. “Larry’s got a lot of my money, and I have to tell you, he got me great returns,” Trump said to laughs in the room.
Later he noted that Jamie Dimon, the chief executive of JPMorgan Chase, one of the largest banks in the world, was also there. “There is nobody better to tell me about Dodd-Frank than Jamie,” Trump said, motioning to Dimon across the table.
Trump is not just consulting with Wall Street. He has tapped about six alumni of Goldman Sachs for key positions in his administration, including Gary Cohn, the bank’s former president and the current head of the powerful National Economic Council. Steve Mnuchin, who is awaiting confirmation as treasury secretary, spent 17 years at Goldman.
To unwind Dodd-Frank, some changes could be accomplished through appointing new leadership for the financial regulatory agencies, including the Securities and Exchange Commission and the Office of the Comptroller of the Currency. They could soften the impact of regulations through the rulemaking process or simply slow implementation.
On Friday, for instance, Trump also signed a memorandum that could delay a Labor Department rule that would require financial professionals advising on retirement rules to put their clients’ interests ahead of their own. The “fiduciary rule,” scheduled to go into effect in April, has long been a target of Republicans, including close Trump ally Anthony Scaramucci, founder of SkyBridge Capital. Critics say the legislation is burdensome and would prompt financial advisers to offer only the most ordinary advice to clients for fear they could run afoul of the rules.
To make more significant changes, Trump will need the cooperation of Congress. Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, is preparing to unveil legislation that would revise Dodd Frank. The executive order marks “the beginning of the end of the Dodd-Frank mistake,” Hensarling said.
One of the authors of Dodd-Frank, former representative Barney Frank, D-Mass., was critical of new attacks on the law, taking note of how Trump is relying on people such as former Goldman Sachs leader Cohn, who come from the industry they would deregulate.
“This is a betrayal of his pledge to help the ordinary citizen against the big guys, against Wall Street. He is giving Wall Street what it couldn’t get through the political process,” Frank said.