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
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
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
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.
For more information
contact Jaspreet Kaur.