BETHESDA, Md. -- Treasury practitioners weighed in on the Trump Administration’s executive order on financial regulations Wednesday morning during the latest meeting of AFP’s Treasury Advisory Group (TAG). Overall, TAG members are optimistic about the potential of various aspects of Dodd-Frank being rolled back, but no one is clear on exactly what will be rolled back.
The future of Dodd-Frank
President Trump issued an executive order on February 3 that deputizes Secretary of Treasury Steve Mnuchin to consult with the Financial Stability Oversight Council (FSOC) and examine the extent to which existing regulation adheres to seven “core principles for regulating the United States financial system”. Those principles require that financial regulation:
- Empower Americans to make independent financial decisions and informed choices, save for retirement, and build individual wealth
- Prevent taxpayer bailouts
- Drive economic growth and vibrant financial markets through more rigorous regulatory analysis
- Enable American companies to be competitive with foreign businesses
- Advance American interests in international financial regulatory negotiations
- Make regulation efficient and appropriately tailored
- Restore public accountability within federal financial regulatory agencies and rationalize the regulatory framework.
All that said, however, it is not clear at this point on which aspects of Dodd-Frank are in National Economic Council Director and former Goldman Sachs president Gary Cohn’s crosshairs. Cohn is widely expected to play a key role in future financial regulatory reform efforts.
For example, Cohn has commented that Dodd-Frank has kept U.S. banks from lending to companies, a comment also made by Trump as well. “We need to get banks back in the lending business, that’s our number one objective,” he told Fox Business.
Those allegations do not line up with the statistics; while it is unclear who Trump was referring to when he said that business “friends” of his “can’t borrow money”, it appears unlikely that he meant large corporates. As the Washington Post noted, Federal Reserve data has shown that commercial lending has soared to record highs after the financial crisis. So whether banks are as hamstrung as Trump and Cohn are implying or not, a major overhaul that gives bankers even more leeway on lending appears imminent.
Whatever happens, there needs to be a plan to replace—at least on some level—whatever will be repealed, one TAG attendee noted. As Republicans are now finding out with the Affordable Care Act, simply trying to repeal something without anything to take its place is problematic both for Americans at large and for policymakers in future election cycles.
The Financial CHOICE Act
The Financial CHOICE Act, a bill currently being drafted by House Financial Services Chairman Jeb Hensarling, has been discussed as another potential vehicle for financial regulatory reform. Although the final bill has not been released, a leaked memo has revealed that it would largely curtail the Consumer Financial Protection Bureau (CFPB)’s authority. The draft parallels a lot of what is in Trump’s executive order, albeit perhaps somewhat more conservative, reflecting the current makeup of the House.
But even if the bill is passed in the House, it could face trouble in the Senate due to the value Mike Crapo (R-Id.) places on bipartisanship. Democrats were opposed to the original version of this bill, and are bound to be against this new version. So this could be a very long process in which a resolution won’t come any time soon.
The reality of the ‘one for two’ rule
One TAG attendee mentioned Trump’s controversial “two for one” executive order, which mandates that two existing regulations must be repealed for any one regulation passed. “Rulemaking has to be consistent with the law,” she said. “Can you really do away with a law for a mandate?
This actually can be done, but it’s a tricky process. For example, Trump’s attempt to repeal the Labor Department’s fiduciary rule requiring brokers to put their clients' best interests first when advising them about retirement plans hit a snag last week when a federal judge upheld it.
Even if the fiduciary rule ends up being repealed, it was, of course, enacted in the last days of the Obama administration, making it more vulnerable than laws that have been around for years. “But what about laws that were enacted two years ago?” one practitioner asked. “Could those also be repealed?”
Another attendee responded that they could, but again, doing so is a long process. “As a result, you see the administration taking a step back on the ‘two-for-one’ rule,” she said.
Actions treasurers can take
In what is likely to be a long, drawn-out process, the White House, Congress and regulators will reevaluate Dodd-Frank and the existing regulatory structure in an effort to understand what is working and what needs fixed. Corporate treasury professionals would be wise to use this as an opportunity to educate policymakers—especially those whose companies are constituents or important participants in relevant regulated markets.