Cheat Sheet: What Trump can — and can’t — do to Dodd-Frank

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The Trump administration released an executive order Friday calling for a review of financial regulatory policy, the clearest sign yet of the White House’s intent to roll back the onslaught of regulations since the 2010 Dodd-Frank Act 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.

According to a copy of the document that was circulating publicly on Friday, the administration's financial regulatory policy will focus on empowering consumers, preventing bailouts, fostering economic growth and "vibrant" markets, advancing U.S. interests in global regulatory discussions, and "restoring public accountability" at regulatory agencies.

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. The order was framed as “core principles” rather than any immediate policy change. (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.”

One principle sure to catch the industry's attention is the administration's pledge to "make regulation efficient, effective, and appropriately tailored."

But 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 solutions 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 – 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, the FSOC’s broad charge is to identify risks to the financial system to aid regulatory policy.

The order includes a directive to the Treasury secretary, consulting with the FSOC, to report to President Trump within 120 days on whether existing regulatory policies meet the principles laid out by the administration.

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,” Ed Mills at FBR Capital Markets said.

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, who heads Trump’s 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, Cohn 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 the FSOC, the administration appears interested in rolling back the oversight 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 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 from 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.”

Yet the administration’s swift action so early in its existence still makes clear President Trump’s hope to reduce the impact of the 2010 law on the financial services industry.

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,” Cohn said in an interview Friday morning on CNBC. “When we come to him with an idea … he is more than happy to get involved and he is giving us the latitude to fix what we think is wrong.”

But how can the Trump administration reshape Dodd-Frank without congressional action?

Even though Dodd-Frank was sweeping, it still left considerable authority in the hands of the regulators to interpret the law when writing rules and implementing them.

While Congress wrote the law, many in the industry see the steps regulators took in the Obama administration as resulting in how the reforms have affected the industry. This ranges from the CFPB’s rules on mortgage underwriting, to how Obama’s Treasury supported the FSOC’s efforts to designate nonbank firms, to how the FDIC constructed its resolution authority for megabanks, and much more.

How future regulators interpret the law – or rather reinterpret it – could be the focus of the Trump administration’s efforts.

“Dodd-Frank provides regulators substantial discretion in many places,” said Aaron Klein, a fellow at 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.”

John Heltman and Ian McKendry contributed to this article.

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