| | | Trump Signs Actions to Begin Scaling Back Dodd-Frank
The financial-overhaul law was put in place in the wake of the financial crisis
By
RYAN TRACY
Updated Feb. 3, 2017 2:47 p.m. ET wsj.com
WASHINGTON—President Donald Trump rewrote the script on Washington’s relationship with Wall Street Friday, signing directives designed to spur a broad rollback of financial regulations shortly after praising the chiefs of large financial firms in a White House meeting.
Mr. Trump’s signing of two executive actions sets in motion an administration game plan for scaling back the 2010 Dodd-Frank financial-overhaul law, put in place in the wake of the financial crisis, and a directive aimed at rolling back an Obama-era retirement-savings rule that was on track to take effect in April.
“Today we are signing core principles for regulating the United States financial system,” Mr. Trump said as he signed the actions.
“We expect to be cutting a lot out of Dodd-Frank because frankly, I have so many people, friends of mine, that had nice businesses,” Mr. Trump said earlier Friday at a White House State Dining Room meeting with business leaders. “They can’t borrow money. They just can’t get any money because the banks just won’t let them borrow it because of the rules and regulations in Dodd-Frank.”
At the meeting, Mr. Trump also thanked Larry Fink, chief executive of BlackRock Inc., the world’s largest asset management firm, for doing a “great job for me.” “He managed a lot of my money,” Mr. Trump said, and then pointed to James Dimon, chief executive of J.P. Morgan Chase & Co., the largest U.S. bank by assets, as he discussed making changes to the Dodd-Frank law.
“There is nobody better to tell me about Dodd-Frank than Jamie,” the president said.
Mr. Trump’s embrace of financial-industry titans was striking for its contrast both with former President Barack Obama and the populist rhetoric of the 2016 presidential campaign made by Mr. Trump and his opponent, Democrat Hillary Clinton.
Mr. Obama clashed with Wall Street CEOs he once called “fat cat bankers” and his administration engineered a massive crackdown on Wall Street risk-taking.
During his campaign, Mr. Trump channeled anger against the big banks, painting Mrs. Clinton as too close to Wall Street. “Wall Street has caused tremendous problems for us,” he said in January 2016.
Mr. Trump’s actions Friday could benefit Wall Street, especially investment advisers. His most immediate action was directing the Labor Department to review a recently completed rule restricting how retirement advice is provided.
In response to a memo signed by Mr. Trump Friday, the department is expected to delay the so-called fiduciary rule, and possibly rewrite or retract it.
The industry had unsuccessfully fought the rule during Mr. Obama’s tenure. Backers say it protects consumers, while critics say it only limits their choices.
Other goals for rolling back financial regulation could take longer to achieve, such as tinkering with restrictions on investments and lending by banks. Some need approval from Congress, while others must be implemented by financial regulators whom Mr. Trump hasn’t appointed yet.
There is no question that Obama-era financial rules have raised the cost of doing business for financial firms, causing them to pull back from offering certain loans and other products. Whether those changes were worth it in the name of financial stability is a matter of intense debate.
The White House said its goal isn't to let Wall Street run wild, but to cull back specific rules it believes are impeding economic growth without meaningfully making the financial system or consumers safer.
“We want to do it in a smart, regulated way,” Gary Cohn, director of the White House National Economic Council, said in an interview Thursday. In a Friday television at appearance on CNBC, Mr. Cohn added that the president is “giving us the latitude to fix what we think is wrong.”
Mr. Trump’s statement Friday that businesses are unable to borrow because of excessive regulations repeats a statement he made shortly after the election. Data backing up that view are mixed. Many show it has been a lack of demand, not supply, that is tamping down borrowing by American companies.
Mr. Trump also signed an executive order Friday directing the Treasury Department to conduct a broad review of financial rules, a symbolic move that gives momentum to Republicans’ regulatory push.
“Oh, happy day,” said House Financial Services Committee Chairman Jeb Hensarling (R., Tex.), in an interview on Bloomberg television about Mr. Trump’s actions. He said his committee expects to start moving forward with legislation to change Dodd-Frank within weeks. The Senate will likely move more slowly, in part because Democrats, who are the minority party there, have more leeway to slow or block action by the Republican majority.
Supporters of Dodd-Frank, and the rules that it prompted, say a crackdown on Wall Street was necessary to prevent a repeat of the 2008 financial crisis. Democrats swiftly criticized Mr. Trump’s actions, previewing what is likely to be a drawn-out political battle.
“Donald Trump talked a big game about Wall Street during his campaign—but as president, we’re finding out whose side he’s really on,” said Sen. Elizabeth Warren (D., Mass.), a prominent Wall Street critic who helped craft parts of Dodd-Frank.
She said his actions “will put two former Goldman Sachs executives in charge of gutting the rules that protect you from financial fraud and another economic meltdown,” referring to Mr. Cohn, who was until recently Goldman’s president, and Steven Mnuchin, a former Goldman banker who is Mr. Trump’s choice for Treasury secretary.
Those men have said their goal is to boost the economy, not help Goldman.
While Dodd-Frank changes would face a fight in Congress, Mr. Trump could have a greater impact by reshaping the leadership of financial regulatory agencies.
“The biggest bang for your buck is changing the referees, not the rules,” said Dan Ryan, financial-services advisory leader at the consultancy PwC. He pointed specifically at two costly regulatory requirements for big banks that are subject to regulators’ discretion: “stress tests” of lending portfolios and “living wills” that examine banks’ preparations for bankruptcy.
Mr. Trump could act soon to fire and replace the head of the Consumer Financial Protection Bureau, which enforces rules for mortgages, credit cards, auto loans and other products. He can also appoint a vice chairman of the Federal Reserve in charge of bank oversight, a key post with significant influence over the enforcement of banking rules. |
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