Dodd, Frank,
and other delights
(More about the
future under Trump)


PRIOR TO April 21, there was unilateral agreement on how upcoming Trump administration policies would impact the financial services industry.

The only hitch? The universal agreement was that there was simply no telling. No wonder more and more prognosticators are retreating to the safety of, “It could be this, that, or the other.”

But, as I said, that was before April 21. On that day, Donald Trump signed an executive order calling for, as an AP story in Fortune summarized, a review of 

… any major tax regulations set last year by his predecessor, as well as two memos to potentially revamp or eliminate fundamental elements of the 2010 Dodd-Frank financial reforms passed in the wake of the Great Recession.

There. That should put an end to
uncertainty and wild speculation, no?

Er, no. 

As the folks at put it,

The good or bad news, depending on how you feel, is that, based on briefings provided in advance by the White House, it does not appear that today’s order actually does anything per se. … Trump’s order does not rescind any of these rules. It merely orders a ‘review’ of them.

Cynical or not, CNBC has a point in that the order changes nothing, requesting no more than taking a look at current regulations. But it’s not as if Mr. Trump and his administration haven’t dropped a hint or two. Returning to the more balanced Fortune piece,

Treasury Secretary Steven Mnuchin said a “significant” issue to be examined will be Obama’s crackdown on inversions, which are mergers that enable U.S. firms to relocate their headquarters overseas where tax rates are lower.

The review could also touch on overlapping rules designed to stop foreign-based companies from shifting their U.S. profits abroad, another Obama initiative from 2016.

The administration is also trying to pass tax reform that would reduce corporate and personal rates.

But it’s Dodd-Frank that’s of particular interest
to the financial services industry.

The Los Angeles Times offered this as to the potential fate of Dodd-Frank:

… Trump, who has vowed to dismantle the landmark Dodd-Frank financial reform law, took aim at two of its pillars Friday [April 21].

During an appearance at the Treasury Department, Trump signed two presidential memos ordering six-month reviews of the 2010 law’s authority for regulators to designate large firms as a risk to the financial system and to try to shut them down with minimal collateral damage if they’re on the verge of failing, the White House said.

The two memos focus on possible adjustments to the Dodd-Frank law, which was designed to stop banks from growing “too big to fail” and requiring public bailouts.

On one hand, that could be good news. It’s no secret that many requirements found in Dodd-Frank and elsewhere are unduly onerous and costly. As Continuity’s Pam Purdue blogged for CB Insight

In Q4 [2016], regulatory agencies unleashed 115 changes … Many of those changes have yet to go into effect, and FIs are still working to ensure compliance with the changes that apply to them before they go into effect. … There are … over 14,000 requirements in the Code of Federal Regulations that financial institutions must manage. Maintaining compliance is an ongoing obligation.”

Whether Dodd-Frank requirements are needless, needful, or needful but over-the-top is a matter of hot debate. Some, including Mr. Trump himself, think doing away with Dodd-Frank in its entirety may not be such a bad idea. In an April 11 speech, Trump said,

You can take a look at Dodd-Frank. For the bankers in the room, they’ll be very happy because we’re really doing a major streamlining and, perhaps, elimination, and replacing it with something else.

Which brings us to the other hand. Monkeying with Dodd-Frank could be bad or at least partially bad news. That’s where former Federal Reserve Chairman Ben Bernanke lands. His position is hardly a surprise, since Dodd-Frank came about during his time as Federal Reserve chairman. Bernanke expressed particular concern over proposals to eliminate the Orderly Liquidation Authority (OLA), created under Dodd-Frank’s Title II. In February, in his piece entitled “Why Dodd-Frank’s orderly liquidation authority should be preserved,” Bernanke wrote:

… Under the OLA, the FDIC and Fed are provided tools to help resolve failing firms safely, in a way analogous to the approach that the FDIC has long used to resolve failing banks … In my view, repealing Title II to eliminate the OLA would be a major mistake, imprudently putting the economy and financial system at risk … under crisis conditions, the OLA (Title II) framework … would be much more likely … to safely unwind a failing, systemically important firm.

While the financial services industry would certainly enjoy jumping through fewer and lower hoops, Tamar Frankel writing for Boston University warns …

… the proposed changes in the act would limit reporting regulation and reduce the costs of the financial servicers, as well as reduce the encouragement and payment to “whistle-blowers.” That means less information about fraud by financial servicers and less caution to hide the fraud …

… Weakening or eliminating Dodd-Frank, and allowing complete free trading and churning of securities markets, will cement what is already too much of a casino culture on Wall Street.

 The Dodd-Frank Act fills over 2,300 pages

That’s about twice the length of an average edition of a King James Bible. It’s also about twice the length of the 50th anniversary, single-volume edition of The Lord of the Rings. And I need hardly point out that Dodd-Frank has won no literary awards nor garnered praise for great pacing and flowing prose.

I bet not many legislators who voted on Dodd-Frank one way or the other—or who now argue for or against it—have read all of the law’s 2,30 pages. And while my hat is off to any of the few, social-life-bereft souls who may have managed to slog through it, reading it is one thing; making sense of it is quite another.

Few would disagree that a certain amount of regulation is needful. The crucial questions swirl around how and how much. Don’t get me wrong. I’m on the banking industry’s side. I’m on my kids’ side, too, but I don’t give them free rein.

What does the immediate regulatory future hold? What will be the long-term consequences? It is—still—all one big Unknown. I’ll close by re-quoting my friend Philip Ryan: “The election of Donald Trump has brought uncertainty and relief to bankers in seemingly equal measure.”

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