Trump begins dismantling Obama financial regulations
With the stroke of a pen, President Trump has begun the push to dismantle the sweeping Dodd-Frank reform of Wall Street.
Trump signed an executive order on Friday that sets this deregulation effort in motion. Details of the order were not immediately available, but the action wasn’t expected to make immediate changes to financial regulations.
Instead, Trump’s executive order is likely to frame the debate going forward by requesting input from the heads of regulatory agencies for changes to the Dodd-Frank law, which was enacted in 2010 to safeguard against another financial meltdown of Wall Street.
“Today we are signing core principles for regulating the United States financial system,” Trump said as he signed the order.
Trump said he wants to roll back Dodd-Frank to free up banks to lend to American businesses.
The executive order came after Trump met with a team of all-star CEOs on his advisory council, that includes Jamie Dimon, the CEO of JPMorgan.
“There’s nobody better to tell me about Dodd-Frank than Jamie,” Trump said on Friday.
Another big name on Wall Street, former Goldman Sachs president Gary Cohn, served as the face of the administration’s Dodd-Frank efforts on Friday.
Cohn, tapped to be Trump’s top economic adviser, gave interviews on television and in newspapers to explain how burdensome regulations are holding back growth.
“We’re going to attack all aspects of Dodd-Frank,” Cohn told Bloomberg. “We want banks to be back in the lending business.”
Earlier on Friday, Senator Elizabeth Warren called on Cohn to recuse himself from matters directly or indirectly related to Goldman Sachs due to the $285 million he left the Wall Street firm with.
Investors are already cheering the deregulatory efforts. Shares of big banks like JPMorgan, Wells Fargo and Citigroup extended their post-election surge by rallying more than 2% each on Friday. Goldman Sachs, among the best performers since Trump’s victory, popped over 4%.
But talk about gutting Dodd-Frank is making some uncomfortable.
“The administration apparently plans to turn over financial regulation to Wall Street titan Goldman Sachs,” Lisa Donner, executive director of Americans for Financial Reform, a nonprofit coalition pushing for Wall Street accountability, said in a statement.
Donner fears the deregulation efforts will make it easier for “big banks like Wells Fargo to steal from their customers and destabilize the economy.”
Michael Barr, a former assistant Treasury secretary under Obama, said the overall direction the administration is taking is to make the financial system “less safe and less fair.”
Fitch Ratings said it doesn’t anticipate a full repeal of Dodd-Frank, but said some parts could be altered significantly.
Bank credit ratings could be lowered if the changes cause lenders to reduce the amount of capital they hold to protect against losses, according to Joo-Yung Lee, head of North American financial institutions at Fitch.
There’s a great deal of uncertainty over precisely which parts of Dodd-Frank are on the chopping block.
Some of Dodd-Frank could be adjusted by Trump through executive actions, while other parts will require Congress. A bill sponsored by Republicans called the Financial Choice Act would eliminate the Volcker Rule, which bans banks from making risky bets with their own money, and also the Consumer Financial Protection Bureau, the Warren-inspired watchdog that has gone after big banks like Wells Fargo.
Sean Spicer, the White House press secretary, suggested on Friday that Trump could move to defang the CFPB. He echoed Republican complaints about the CFPB by saying Dodd-Frank created an “unaccountable and unconstitutional new agency that does not adequately protect consumers.”
Treasury secretary nominee Steven Mnuchin has said he thinks the CFPB is worth keeping, but suggested it should be funded by Congress, not the Federal Reserve. Such a move could hurt the CFPB’s independence, allowing Republicans to starve it of funding.
Mnuchin has said he wants to reform the Volcker Rule to make sure there aren’t unintended consequences that hurt markets.
Another key issue: Banks had grown so large that the government had no choice but to bail them out when they collapsed.
Spicer argued on Friday that despite Dodd-Frank’s “overreaching,” it failed to solve one the core issues of the financial crisis: Too Big To Fail banks. “We must determine conclusively that the failure of a large bank will never again leave taxpayers on the hook,” he said.
One way Trump could try to tackle this issue is by altering the Financial Stability Oversight Council. Cohn told The Wall Street Journal new orders could be coming t hat would alter the FSOC, which was created by Dodd-Frank as a way to monitor risks in the system, safely dismantle collapsing firms and supervise large nonbanks known as systemically important financial institutions.