In July of 2010, President Obama signed The Dodd-Frank Wall Street Reform and Consumer Protection Act into federal law. According to the Dodd-Frank Cheat Sheet, the Act “implements changes that, among other things, affect the oversight and supervision of financial institutions, provide for a new resolution procedure for large financial companies, create a new agency responsible for implementing and enforcing compliance with consumer financial laws, introduce more stringent regulatory capital requirements, effect significant changes in the regulation of over-the-counter derivatives, reform the regulation of credit rating agencies, implement changes to corporate governance and executive compensation practices, incorporate the Volcker Rule, require registration of advisors to certain private funds, and effect significant changes in the securitization market.”
Now, nearly seven years later, President Trump has called for a review of the Act – but with congressional Democrats resisting the rollback, how can Trump really affect Dodd-Frank? Let’s take a closer look.
Although many industry experts agree that Trump will not have any notable impact on Dodd-Frank in the short-term, some believe that he will have the power to reform or repeal specific sections of the Act further into his presidential term—but not too drastically, as the President has very minimal direct authority to modify Dodd-Frank, repeal the fiduciary duty rule or adjust Fannie Mae or Freddie Mac. Today, Democrats still have a large enough minority to block any rollback measures and the CFBP are still Obama administration appointees. Once new agency heads are appointed, however, the administration could surely have enough power to moderately influence policy.
No, this does NOT mean a complete rollback of Dodd-Frank is likely, even if existing Democratic agency heads are replaced with Republicans. In fact, various Trump officials have voiced their approval of several elements of the Act, including the Volcker Rule, which was created to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers. So, the administration will likely focus on only “attacking the regulatory issues that [they] think are slowing down economic growth” (Gary Cohn, Head of Economic Council)—and Trump does not necessarily need Congress’ support to do this. In fact, Dodd-Frank can be altered without congressional action because it has left considerable authority with regulators to interpret the law when writing and implementing the rules.
More specifically, “Dodd-Frank provides regulators substantial discretion in many places,” reported Aaron Klein of the Brookings Institution. “Generally, Congress draws the lines for bank regulation and lets the regulators fill in the details. And the details matter a lot.” These details can range from the CFPB’s rules on mortgage underwriting, to how the FDIC constructed its resolution authority for megabanks, and much more.
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