Cheat Sheet: What Trump Can — and Can't — Do to Dodd-Frank

Image: Bloomberg News
Image: Bloomberg News
President Trump "has asked us to start attacking the regulatory issues that we think are slowing down economic growth and one by one we will pick up these issues," said Gary Gohn, director of the National Economic Council.

The Trump administration was set to release an executive order Friday calling for a review of the Dodd-Frank Act, the clearest sign yet of the White House's intent to roll back the onslaught of regulations since the 2010 law was passed.

But the immediate questions about the order focused on what authority the White House has to enact real change, since congressional Democrats are resistant to rolling back the law and those running the regulatory agencies are still Obama administration appointees.

News of the order, which appeared to be timed with President Trump's scheduled meeting with business leaders, first came out in a media interview with National Economic Council Director Gary Cohn. He spoke of possible reforms including changes to the Financial Stability Oversight Council, the "living wills" process, a facility for resolving failed companies and even reforms for the housing finance system.

Here are answers to some frequently asked questions about the Trump policy:

What will be the immediate impact of this executive order?

The impact will likely be small in the short term. For now, the order appears to be coming in the form of "principles" on how the administration will review the effect of the law. (The administration was also expected to call for a rollback of the Labor Department's fiduciary duty rule.)

"The president has very little direct authority to change Dodd-Frank, repeal the fiduciary duty rule or revamp Fannie Mae and Freddie Mac. As a result, his orders will urge other parts of the government to make changes," wrote Jaret Seiberg, an analyst at Cowen Group. "With the possible exception of the fiduciary duty rule, actual changes for the banks are unlikely to occur quickly."

It seems unlikely the White House could roll back Dodd-Frank regulations on its own without legislation from Congress, and that does not seem imminent.

"We don't think…the financial services industry is at the top of the list in terms of what we will see legislatively," said Margaret Paulsen, managing director of the financial services advisory practice for PwC. "Broad-brush legislative solution in the financial services industry we think are going to be hard to accomplish."

The administration would also face an uphill climb in persuading the independent agencies responsible for implementing the law to ease back on Dodd-Frank regulations. The heads of the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency were all installed by the prior administration and have said they will serve out their terms.

"In the short run, rules changes will need support from the heads of regulatory agencies who were appointed by President Obama, and we think will slow down this process," KBW analyst Brian Gardner said in a note Friday.

Just two weeks into the new administration, the White House has already called for a halt on regulations among executive departments, but many see the banking regulators — as independent agencies — as exempt.

Yet the White House has apparently decided to anchor the regulatory review in the FSOC, a panel created by Dodd-Frank that is made up of the heads of all the regulators and is chaired by the Treasury secretary. In addition to designating "systemically important" nonbanks for tougher supervision, FSOC's broad charge is to identify risks to the financial system to aid regulatory policy.

Treasury Secretary-designate Steven Mnuchin would chair the council once he is confirmed.

"We believe that the White House is using the Treasury secretary's role as the head of FSOC as a 'hook' to open a discussion with independent financial regulators that would otherwise be exempt from the executive order," said Ed Mills of FBR Capital Markets.

What will be the long-term impact?

Trump's executive order could focus congressional efforts to reform, or repeal, sections of Dodd-Frank. Yet such an undertaking faces obstacles in the Senate, where Democrats still hold a sizable enough minority to block measures.

But the administration would have more power to influence policy once it appoints new heads of the agencies.

Cohn, Trump's head of his economic council, appeared to hit on this point in his comments to The Wall Street Journal, including how a new CFPB director in particular could make a difference. The administration's position on financial regulation makes it ever clearer that officials are interested in replacing Richard Cordray as head of the consumer bureau.

Speaking about the CFPB's leadership, he was quoted as saying, "Personnel is policy."

Observers agreed with the assessment that the makeup of the agencies matters in determining future policy.

"The rubber hits the road with the regulatory agencies; tell me who the regulators are going to be and I'll tell you what the regulatory policy will look like," said Thomas Vartanian, a partner at Dechert LLP.

Meanwhile, Cohn also mentioned the possibility of additional executive orders dealing with how the FSOC operates and how the government resolves failing institutions.

On FSOC, the administration appears interested in rolling back the oversight's council's ability to designate nonbank firms as "systemically important financial institutions."

"This just shows that the administration is focused on reversing the swing of the regulatory pendulum," said David Portilla, former senior policy adviser at the Treasury for the FSOC and a partner at Debevoise & Plimpton. "There's going to be change, and I think the agencies are going to likely adjust their approach to a number of issues."

Does this mean that Dodd-Frank will be repealed?

No. Not only is a complete unwind of the 2010 law unlikely in the current political environment in Washington, but even Trump officials themselves have said there are aspects of tougher regulation that they like.

For example, in his nomination hearing, Mnuchin voiced support for the Volcker Rule, the Dodd-Frank provision that bans banks proprietary trading. And in his comments to the Journal, Cohn said, "I'm not sitting here saying we want to go back to the good old days."

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