President-Elect Trump may decide to quickly reshape the Fed by appointing the first Fed Vice Chairman of Supervision, a position that was never fulfilled by President Obama, and which would have major power in reining in Dodd-Frank regulations. Experts say this position could potentially be more important than Trump's pick for Treasury Secretary. (For more, see: Trump Vows to 'Dismantle' Dodd-Frank.)
Rolling Back Dodd-Frank
The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by the Obama administration in 2010 as a response to the financial crisis of 2008. It is named after its co-sponsors, Senator Chris Dodd and Representative Barney Frank. The law is expansive, covering approximately 2,300 pages, and it is intended to decrease various risks in the U.S. financial system. For example, Dodd-Frank established a number of new government agencies who are tasked with overseeing various aspects of the financial system. (For more, see: Breaking Down the 'Dodd-Frank Wall Street Reform and Consumer Protection Act '.)
President-elect Donald Trump, however, has repeatedly pledged to repeal Dodd-Frank. Stock markets in the U.S. have cheered the news, as it means that banks can cut costs and increase seemingly profitable activities that were restricted by this regulation. Since many lawmakers believe that these rules are necessary to prevent another 2008-like financial crisis, there has been resistance in congress to Trump's plan.
But, according to Bloomberg, "as President-elect Donald Trump’s hiring spree captivates White House watchers, the biggest banks are laser-focused on a little-known position that’s neither a cabinet job nor the head of a government agency: a first-ever Federal Reserve vice chairman to oversee Wall Street." This includes enforcing financial regulations such as Dodd-Frank. President Obama never filled this position, as he expected a Republican-dominated congress to block his nominees. As a result, Fed Governor Daniel Tarullo, a pro-regulation advocate, has unofficially enforced the act. After Trump appoints an anti-regulation nominee, Tarullo may remain a Fed governor, but will not be able to effect enforcement of regulation any longer. This means that even if Dodd-Frank is not repealed, it may remain be un-enforced or ignored. (For related reading, see: Yellen’s Future With the Fed After Trump Win.)
The Bottom Line
While President Obama never filled the position of Fed Vice Chairman of Supervision, who oversees enforcement of regulation, Trump is likely to install an administrator who will be lenient on Dodd-Frank. This means that even if congress does not allow a repeal of these sweeping financial regulations, the new appointee may simply not enforce its provisions in a meaningful way.