Background: Following the financial meltdown of 2008, where subprime lending, collateralized debt obligations, and overzealous consumers overestimating the extent of their actions, Congress reacted by instituting vast legislative reforms targeted at the financial sector. The Dodd–Frank Wall Street Reform and Consumer Protection Act, as formerly noted, was responsible for increasing the amount of money required by a bank to keep on hand, greatly increasing compliance standards for banks, introducing far stricter terms for mortgage lending, creating the Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB), as well as seeking to curtail the alleged “risky” business engaged by firms through proprietary trading.
A couple of weeks ago, President Donald Trump held a briefing to discuss the burdensome existence of banking regulation on the overall health of the financial sector,. When discussing the matter President Trump took aim at Dodd-Frank, noting that he would be making large cuts to the bill, which is responsible for imposing monumental regulations on the banking sector and limiting the practices on Wall Street. However, while the president seeks to roll back the regulatory measures set in place under Dodd-Frank, his ability to impart sweeping reforms are limited to constraints of an executive order. Only Congress retains the power to exercise legislative review on the law it passed in 2010, under the Obama administration.
Nonetheless, Trump has been extremely vocal in his call to eliminate the unnecessary burdens imposed by the law, claiming that Dodd-Frank’s massive regulations have slowed economic growth and made it harder for businesses to expand and borrow money. Gary Cohn, current director of the White House’s national economic council and former president and COO of Goldman Sachs, furthered this rhetoric by pushing for a dismantling of the law, stating that, “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.”
But not everyone is as eager as Cohn in deregulating the financial markets, as they believe that doing so will simply reopen a “can of worms.” Federal Reserve Chair Janet Yellen, stood contrary to Trump’s position, defending Dodd-Frank in a testimony on Capitol Hill, Wednesday, stating that she “would not want to see it removed.” Yellen later took a jab at the president challenging his assertion that Dodd-Frank has restricted lending, stating that an “extremely low number of small-business owners reported having insufficient access to credit since Dodd-Frank was passed in 2010.”
In spite of this, it appears that Trump is moving forward with his rhetoric, having recently passed a series of executive orders aimed at undermining the integrity of the law. On Feb 3, 2017, Trump issued an executive order targeted at evaluating the “fiduciary rule,” which requires that advisors act in the best interests of their clients, and to put their clients’ interests above their own. His memorandum directs the Labor Department to review whether the rule may “adversely affect” investors’ ability to access financial advice — and if it does, it authorizes the agency to rescind and revise the rule.
In addition, on Feb 14, 2017, Trump issued another executive order that scraped legislation set forth by the SEC (Securities Exchange COmmision) which required that oil and mining companies disclose their tax payments to foreign governments. The measure, according to the SEC, was designed “to advance U.S. policy interests by promoting greater transparency about payments related to resource extraction.” However, the compliance measure proved to be a costly expense for the industry, on top of existing regulation imposed by the EPA and the Obama administration that restricted mining operations and limited oil drilling.
Furthermore, with the confirmation of the President’s Treasury Secretary, Steven Mnuchin, the public should see more orders being signed with the intent of reevaluating existing legislations that burden companies and financial institutions with unnecessary overhead expenses. As of now, the market seems to be incredibly receptive to President Trump and his measures to “Make America Great Again.” Hopefully, this growth shall be sustainable.