On the campaign trail, Donald Trump repeatedly vowed to roll back Dodd-Frank, the package of regulations aimed at preventing another financial crisis by placing new strictures on banks.
And while that wasn’t even in the Top Five of his crowd-pleasing lines, it’s one of the promises that he doesn’t seem willing to let slide completely away.
The Trump transition team reaffirms on its website the goal of upending Dodd-Frank, which Republicans have opposed as too onerous and Trump has said hamstrings bank lending – curtailing business creation and expansion.
The transition team statement says in part: “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
Also, in the Republicans’ crosshairs is the Consumer Financial Protection Bureau, which was authorized by Dodd-Frank.
But rolling back Dodd-Frank will meet stiff resistance from Democrats. Protectors of the CFPB – especially Senator Elizabeth Warren, who first proposed the agency as a Harvard law professor—are girding for a bruising battle.
While the prospect of gutting Dodd-Frank is unlikely to happen, as Professor Steven Davidoff Solomon of UC Berkeley School of Law pointed out yesterday in a column in The New York Times, the GOP just doesn’t have the votes in the Senate. What’s more, a wholesale repeal might be problematic for the banks, which have made major investments in compliance.
Solomon did say there might be room for a compromise that would incorporate some of the changes proposed in the Financial Choice Act proposed by Representative Jeb Hensarling, chairman of the Financial Services Committee and a candidate for Treasury Secretary. One possibility: elimination of the Financial Stability Oversight Board, whose main job is to designate which big banks and insurance companies pose a systemic risk to the economy.
Meantime, in the wake of Wells Fargo defrauding clients – a scandal that surfaced just before the election -- the Office of the Controller of the Currency, which regulates national banks, is weighing tougher sanctions that could have an impact on executive pay and even leadership, Reuters reports.
And the CFPB, The Wall Street Journal says, is rushing to put into place new rules that would make it easier for consumers to sue financial institutions.
But even if scrutiny of big financial institutions is dialed back, it isn’t going away – and Trump and Republicans on Capitol Hill may not be able to do much about it.
Shutting down the Financial Stability Oversight Board, for example, might remove a U.S. regulator, but that doesn’t mean no one will be keeping a close eye on which banks are too big to fail: There is already a global body with a similar role. In fact, on Monday the Switzerland-based Financial Stability Board—which is made up of central bankers and regulators from the largest economies—found that Citigroup, Wells Fargo and Bank of America posed more of a risk to the world financial system this year than they did in 2015.
And today the European Union was scheduled to propose new rules that would “force US investment banks such as Goldman Sachs and JPMorgan to have additional capital and liquidity in the EU so their subsidiaries can better withstand a crisis and be separately wound up if needed by European authorities,” according to The Financial Times.
Perhaps most important, Trump risks alienating some of the voters who put him in power if he bends to the wishes of the big banks.
Last week in a message on social media, Senator Warren said, “Anyone in Congress — GOP or Dem—who votes to weaken the CFPB will declare loud and clear they represent giant banks, not working families."
The Massachusetts firebrand could actually have an influential ally within Trump’s inner circle.
At a Vatican conference in 2014, Steve Bannon, Trump’s controversial campaign chief who has been named “White House chief strategist,” said that “not one criminal charge has ever been brought [against] any bank executive associated with 2008 crisis. And in fact, it gets worse. No bonuses and none of their equity was taken. So part of the prime drivers of the wealth that they took in the 15 years leading up to the [financial] crisis was not hit at all, and I think that's one of the fuels of this populist revolt that we're seeing …. I think you need a real cleanup of the banks’ balance sheets.”