President Trump Issues Directive to Roll Back Dodd-Frank Act

• Posted on: Feb 20 2017

On the same day that he signed a directive ordering a review of the Labor Department’s fiduciary rule (discussed here), President Trump signed an executive order directing the Treasury Secretary and other regulators to review existing regulations to determine whether they support six core principles. Included in those principles are:

• Empowering Americans to make independent financial decisions;
• Fostering economic growth through more rigorous regulatory impact analysis;
• Advancing American interests internationally; and
• Enabling American companies to compete internationally.

The order directs regulators to submit a report within 120 days identifying laws and regulations, particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank” or the “Act”),  that are not consistent with the core principles.

Treasury secretary nominee Steven Mnuchin reportedly supports rolling back the reform measure. In particular, in his testimony before the Senate Finance Committee, Mnuchin said his priority would be changing the asset thresholds that put banks and systemically important financial institutions under the jurisdiction of the Consumer Finance Protection Bureau.

In sum, Mnuchin believes that the complexity and activities of these firms should determine the regulatory framework rather than size. One of the critiques of the reform measure was that it unfairly targeted community banks and impeded business lending. Currently, there is also legislation working its way through Congress that would free banks from Dodd-Frank’s capital rule in exchange for complying with a more straightforward leverage ratio of 10 percent.

On the other hand, Mnuchin supports the so-called Volcker Rule, a provision of Dodd-Frank that prohibits financial institutions that are ensured by the Federal Deposit Insurance Corporation from engaging in proprietary trading. At the same time, he intends to clarify the rule in order to enhance market liquidity, which in theory would spur lending.

While rolling back the Act has the support of a number of industry groups, it is also being met with fierce opposition by a variety of consumer advocates who contend this will trigger another financial collapse.

In addition, any change to this regulatory framework will be a lengthy and costly process as financial institutions have already made significant investments to implement systems to comply with the existing rules and regulations. It is also likely that the President’s order will spark another round of legal actions challenging the directive. In the final analysis, whether the Act will remain intact remains to be seen.  This Blog will continue to monitor these developments.

Tagged with: Complex Litigation, Securities Arbitration