On Friday, President Trump was expected to sign an executive action rolling back Dodd-Frank, the regulatory system Barack Obama instituted in 2010 after the financial crisis of 2008. Trump was also expected to order a review of the Labor Department’s fiduciary rule, which was to go into effect in April.
Dodd-Frank established a number of new government agencies, including the Financial Stability Oversight Council and Orderly Liquidation Authority, which monitored the financial stability of major firms whose failure was deemed dangerous for the economy and had the power to dismantle banks considered so large they posed a systemic risk. The FSOC also could force banks to increase their reserve requirements.
The Consumer Financial Protection Bureau (CFPB) was established to prevent predatory mortgage lending and supervised consumer lending, including credit and debit cards. The Volcker Rule trimmed the routes banks could use to invest, limiting speculative trading and eliminating proprietary trading. It also regulated financial firms' use of derivatives to ward off "too-big-to-fail" institutions from taking large risks.
The Labor Department’s fiduciary rule, which Trump’s team views as unnecessarily restricting investor choice, orders retirement advisers to act in the best interest of their clients. White House National Economic Council Director Gary Cohn explained to The Wall Street Journal that under the rule companies would be forced to offer retirement products with the lowest fees even if it isn’t best for their client.
As The Heritage Foundation explained in their volume, “The Case Against Dodd–Frank: How the ‘Consumer Protection’ Law Endangers Americans,” the expectation that the government could mandate solvency and eliminate business cycles is futile; as AEI's Peter Wallison pointed out, preventing prevent future bailouts would entail getting the government out of the private sector; if companies knew they wouldn’t be rescued, they’d eschew taking risks. Paul Kupiec Dodd–Frank’s orderly liquidation authority (OLA), which was a “special” process for shutting down failed financial firms, presumed falsely that large financial companies couldn’t be reorganized in bankruptcy without destabilizing financial markets.
As Norbert J. Michel wrote, “The inconvenient truth about Dodd-Frank is that it embraces policies that do not address the causes of the last crisis, lays the groundwork for the next crisis, and impedes economic growth in the interim.”
Cohn stated, “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year. The banks are going to be able to price product more efficiently and more effectively to consumers.” He added that existing regulations from Dodd-Frank are so sweeping that banks cannot lend money efficiently, saying, “We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage. But on the flip side, we also have the most highly regulated, overburdened banks in the world.”
The problem for Trump is that by freeing the banks to act with more latitude he may offend those whose votes he captured by attacking Wall Street. Additionally, Trump is scheduled to meet with major business executives on Friday as well.
To successfully repeal Dodd-Frank would require 60 votes in the Senate, as the Democrats would surely filibuster such a plan.
On Monday, Trump said bluntly, “Regulation has actually been horrible for big business, but it’s been worse for small business. Dodd-Frank is a disaster.”