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
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
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.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
Jaspreet Kaur for more information.