President Trump and Republicans are preparing to dismantle the law passed in 2010 that was aimed at preventing another global financial crisis. “We’re going to be doing a big number on Dodd-Frank,” Trump said Monday, as reported by Bloomberg. Speaking to small business leaders gathered at the White House, Trump asserted that the 2010 financial reform bill is “a disaster” that is limiting the flow of credit to startups and existing businesses alike. (See also: Top Bank Regulator Urges Trump to Keep Dodd-Frank.)
Lending After Dodd-Frank
Trump faces difficult challenges in further expanding credit and in overhauling Dodd-Frank.
Trump may have set a high hurdle for himself when it comes to increasing commercial and industrial loans outstanding, which already have grown by 70%, from $1.2 trillion to $2.1 trillion, since the July 2010 passage of Dodd-Frank, according to data from the Federal Reserve cited in the same Bloomberg article. Meanwhile, outstanding small business loans of $1 million or less have grown at a slower pace, by just 5.8%, from $310 billion to $328 billion since the law's passage through last September, per data from the FDIC also cited by Bloomberg. However, it’s unclear how Dodd-Frank actually has affected lending to small business, says Justin Schardin of the Bipartisan Policy Center, who spoke to Bloomberg in a January 30 story.
Bank stocks have slipped since mid-January after surging in the first two months after the presidential election as investors anticipated that Trump's deregulation of financial services and other policies would boost bank profits.
Options For Repeal
Repealing or revising Dodd-Frank will require new legislation by Congress, not an executive order from Trump, and any such bill runs the risk of dying in the Senate, where the Democrats hold enough seats to filibuster. Nonetheless, last summer Republican Congressman Jeb Hensarling of Texas, chairman of the House Financial Services Committee, introduced the Financial Choice Act. This sweeping bill would repeal the Volcker Rule that limits trading by banks and the Durbin Amendment that limits fees on debit card transactions, while also replacing Dodd-Frank with a more flexible regulatory structure, according to a January 30 article in the New York Times.
Another possible plan of attack is to undo Dodd-Frank in piecemeal fashion. Under the Congressional Review Act of 1996, bills to repeal newly enacted regulations are immune to filibuster in the Senate, and thus can be passed by a simple majority, which the Republicans have. However, according to the Times, only a small number of regulations adopted pursuant to Dodd-Frank can be undone in this fashion.
Using the budgetary process is another alternative. For example, Republicans can seek to cut funding for the Consumer Financial Protection Bureau and the Financial Stability Oversight Council by making them subject to the appropriations process, the Times reports. They also can attempt to write a new chapter of the bankruptcy code that covers the unwinding of troubled banks, taking this process out of regulators’ hands. These are only a few areas, though, over which Dodd-Frank has jurisdiction.
Financial regulatory bodies such as the SEC and the CFTC are now under a Trump administration. Enforcement of existing regulations, such as the Volcker Rule, can be slackened, and the writing of new rules pursuant to Dodd-Frank, such as a controversial one on executive compensation, can be stalled or shelved, the Times notes.
Regulators have warned against hasty moves to repeal or reduce the scope of Dodd-Frank. Even bank CEOs, despite their complaints, have grown cautious about wholesale repeal. (For detail, see: Dodd-Frank: How Bank CEOs Want It Changed.)