President-elect Donald Trump made a promise to drastically change certain aspects of the government within his first 100 days in office. Curtailing illegal immigration, repealing Obamacare, and lowering corporate taxes all make his top ten. However, there is another key promise he made that have many in the financial services industry hoping he makes good on as soon as possible. That promise is the dismantling of Dodd-Frank.
Although Trump has never had a cozy relationship with Wall Street, he believes that Dodd-Frank is regulatory albatross around the necks of the finance industry. With Trump making the repeal of the bill a common theme in campaign stops, many politicians are starting to think about changing about the law’s core features. The Democrats in Congress have a different plan, hoping to thwart whatever changes the new administration has in mind. Sherrod Brown, the ranking Democrat on the Senate Banking Committee, has said that if Donald Trump “starts doing the bidding of Wall Street,” he will be joining the Republicans in advocating a “billionaire’s agenda.”
What the Democrats fail to realize is that Dodd-Frank does nothing to corral rogue Wall Street firms purportedly out to sock it to middle America. However, the law is designed to place burdensome regulatory requirements on companies and impose steep fines on those that fail to comply. What this is accomplishing is it creates a virtual class system among financial institutions, with the larger firms being able to comply easily, while smaller financial companies, which are tailored more towards working with non-institutional investors, being strapped with burdensome and costly over-regulation.
Emerging out of the financial crisis of 2008, Dodd-Frank was sold to the American public as a way to “rein in” Wall Street and force reforms on an “out of control” industry. Democrats have long held the false belief that the Great Recession was born out of deregulation. However, the fact is that stringent financial regulation was already in place and had been growing exponentially since 2000. Instead of the “real reform” promised, Dodd-Frank was designed and written by lobbyists and lawyers in Congress who understood that financial firms, (some of the wealthiest companies in America) would have to hire teams of attorneys and pay millions in legal fees to comply with the law. They knew full well this would provide a never-ending supply of clients for their cronies and industry lobbyists.
The nation’s banks and financial firms were already filled with healthy doses of government rules and regulations before 2008. In fact, since 1999 the volume of regulations grew the fastest since the Securities Act of 1933. There were changes to liquidity rules, capital rules, disclosure rules, capital limits; virtually every function of a financial services firm was scrutinized again and again. Banks and investment firms had to have a full staff of internal compliance officers just to keep up with the ever-expanding regulatory environment.
So enter Dodd-Frank. In 2009, the same big banks that melted down during the financial crisis were the ones that were bailed out by taxpayers. The regulations that had been imposed on them did little more than justify that the entity that imposed those regulations, the federal government, be responsible for rescuing them from failure. The federal government, and especially Democrats in Congress, doubled down on regulatory restrictions. The rules that have followed the so-called reform bill have not served to protect the consumer, but rather increased the cost to average investors and heightened the risk to taxpayers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010. Since that time, nearly every financial firm and banking institution in America, as well as some across the world, has felt its sting. The onerous rules have forced large corporations to hire entire departments made up of lawyers and compliance officers. Smaller firms laid off employees and replaced their positions with a legal team working 24/7 to keep their company out of red tape. Dodd-Frank is not financial reform, but rather vengeance against a scapegoat, presented to the public as the cause of all of America’s economic woes. However, with Donald Trump’s election, members of Congress have an opportunity to dismantle Dodd-Frank and, at the very least, transform the law into something other than a penalty-producing government ATM, and into smart regulation that really protects consumers.
President-Elect Trump’s victory came on the hopes of the American consumer believing that we can achieve a better economic future. Middle America wants opportunity for everybody, not bailouts for the world’s largest financial organizations. Whether the public realizes it or not, Dodd-Frank decreased investment opportunity and made bank bailouts not only more likely, but required of federal regulators.
Hopefully, the financial crisis of 2008 was a once in a generation event that will not be repeated anytime soon. However, with Dodd-Frank reform, we have a chance to get financial oversight right finally. To reduce the burdensome and ridiculous rules designed to limit a bank’s profitability and begin to create a regulatory environment that makes bailouts less likely. By making it clear to banks that financial losses are their responsibility and taxpayer bailouts are no longer an option, you better believe banks and financial institutions will make it a priority to regulate and challenge the way their executives and corporate compliance departments conduct business.
