Dismantling Dodd-Frank Will Not Be an Easy Task


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After his signature Obamacare repeal bill failed to get enough votes to pass Congress, Trump has turned his eye towards fulfilling other campaign promises, namely taxes and regulations. At the top of his list has been what the administration considers to be the anti-business regulations and oppressive rules that make it harder for banks and financial institutions to compete.

With an ambitious goal of eliminating at least 75% of existing regulations, Dodd-Frank seems the most likely place to start. During a campaign stop last May, Trump stated that financial reforms instituted under President Obama were damaging the economy and he vowed to dismantle nearly all of them. At the time, a then-candidate Trump said, “Dodd-Frank has made it impossible for bankers to function. It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”

When asked by reporters how far he would go in reforming the bill, Trump responded that it would be “close to dismantling Dodd-Frank.” However, dismantling what has now become a behemoth of Washington bureaucracy may not be as easy as Trump first envisioned.

After the failed attempt to repeal Obamacare, President Trump reportedly was surprised at how hard it is to repeal Congressional legislation, even with his support and arm twisting. Before leaving office, President Obama alluded to that fact by telling reporters it is much better to do things legislatively because it is harder to unwind. This concept has been shown to be definitively clear, with the new president virtually wiping out much of Obama’s presidential decrees during his first few weeks in office, yet having a harder time undoing laws that were written and approved by Congress.

On April 3, during a town hall-style event with banking CEO’s, Trump said that his administration will be giving Dodd-Frank a “very major haircut” and that he would be taking steps above and beyond simple recommendations in rolling back the regulatory law. “We are going to be doing things that are going to be very good for the banking industry,” Trump told the audience.

The softening tone from earlier calls to repeal Dodd-Frank, to now talking of only making changes, is reflective of President Trump’s realization that thoroughly dismantling the law will be tough. While the banks and financial institutions have claimed the law is a barrier to business, some in the banking world still think that Dodd-Frank is a necessary tool to ensure that Americans do not experience another financial crisis similar to that of 2008.

The Federal Reserve’s current regulatory czar, Daniel Tarullo, is set to leave his post on Wednesday, April 5th. He is one of the strongest voices on the left who wants Dodd-Frank left in place. Although Tarullo agrees that some changes should be made to the law to make it easier for community banks to compete, he has stated that eliminating the law should be off the table. His vacancy will most likely pave the way for Trump to appoint someone that will take a less stringent regulatory approach to U.S. banking.

Challenges to Repeal

Repealing Dodd-Frank would require an act of Congress and would also need a replacement law to fill the void. Dodd-Frank is incredibly complex, with 75% of initiatives already being implemented. Unwinding this type of complexity would take years of planning, rule-making, and alterations. Many of the rules in place affect not only national bank policy, but also how banks approach international business. Changing those rules all at once could drastically throw the banking system off balance and cause uncertainty. Tweaking or altering burdensome rules may be the changes Trump was opting for when he told his incoming treasury secretary to evaluate Dodd-Frank and make suggestions on how to reform the regulatory rules surrounding the law.

Another challenge facing the Trump administration is the philosophical differences between his rhetoric surrounding the repeal of the law, and his railing against Wall Street corruption. How will Trump justify the appearance of weakening the very law that was put in place to protect Americans, however flawed? It appears Trump – the self-proclaimed anti-politician – is finally coming to understand that how his political actions look to voters, is as important as the results those actions produce.

Choosing a Path to Repeal

The process of eliminating or altering portions of law can take both a formal or informal path. The formal path requires a Congressional hearing and oversight by a panel of judges. The informal rule-making process makes more sense if Trump is to begin dismantling at least portions of Dodd-Frank. That process includes “Notice and Comment” from the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA), along with the Executive Branch. The process is lengthy, involves multiple agencies, and could take years to make even slight changes, but may face less opposition from Trump’s detractors.

The rule-making process would include:

  • Gathering evidence
  • Involving stakeholders, such as academics, industry pros, and the public
  • Notice of proposed rulemaking
  • OMB review
  • Public comments period
  • Final rule preparation
  • OMB final rule review
  • Publication of final rule
  • Draft of implementation, disclosure, and reporting of final rule
  • Rules agenda development

So for the Trump administration, the process of changing Dodd-Frank would be the same as if new rules were being implemented under the same law. Changing even one rule could take months to achieve, if not years, and could become stalled further with Congressional opposition or court challenges. Career civil servants in federal agencies may work to undermine the president and delay any action almost indefinitely.

Taking Congressional Action

It is probably becoming very clear to President Trump by now that he cannot unilaterally change Dodd-Frank with an executive order. If he wants substantial and lasting changes to the law, he will have to work with Congress to get it done. While some lawmakers are in agreement that Dodd-Frank is a “disaster,” they will still find opposition from almost every Democrat on the Hill trying to defend Obama’s legacy.

Republicans in Congress do have some lethal tools in their arsenal to make changes to core principles of Dodd-Frank. However, gathering enough representatives willing to go along with those changes will be challenging.

House Republicans can alter some aspects of Dodd-Frank through the passage of laws that defund or delay the implementation of certain rules, but that will not address changing core components that are already implemented and enforced. Using tools like the Congressional Review Act, lawmakers can overturn some new rules and prohibit their implementation. However, given that 75% of the law is already in place, this process may slow full implementation but still leaves the most controversial portions of the law untouched.

Trump is a businessman who ran a successful presidential campaign based on bringing change to Washington D.C. However, he is quickly learning that changes to our government are not made as easily as those in the board room.

While he has strong allies in Congress, such as Republican Jeb Hensarling, chairman of the House Financial Services Committee, the president will need a lot more support if he is going to succeed in making changes to core components of the law, such as the Consumer Financial Protection Bureau. He will face challenges, both politically and procedurally, yet he can begin by taking a stand against any new rule implementation and working with Congress and the Treasury Secretary in identifying and removing the most onerous rules that are negatively impacting the growth of America’s economy.

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