One of the bigger surprises to emerge from the initial attempts by the Trump transition team to frame the president-elect’s policy yesterday, was what was dubbed at full repeal of Dodd-Frank, a move which has been seen by some as surprisingly pro-banker friendly.
Specifically, this is what the website says on the topic of Dodd-Frank:
Following the financial crisis, Congress enacted the Dodd-Frank Act, a sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies. The proponents of Dodd-Frank promised that it would lift our economy. Yet now, six years later, the American people remain stuck in the slowest, weakest, most tepid recovery since the Great Depression. Paychecks have been stagnant. Savings are being depleted, millions are unemployed or underemployed, and millions more have dropped out of the workforce altogether. Economic growth remains below 2%, about half the historic average. The big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed “too big to fail.”
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.
However, in what may be bad news for the financial sector, following vocal opposition to grassroots as well as Congressional republicans, Trump appears to now be tempering expectations of a full Dodd-Frank repeal, and according to the WSJ, Trump’s transition team is instead focusing on “rescinding or scaling back individual provisions” of Dodd-Frank that Republicans dislike most, such as the Financial Stability Oversight Council’s authority to designate large nonbanks systemically important and thus subject to tougher regulation from the Federal Reserve.
The WSJ adds that another priority is overhauling a separate section of Dodd-Frank, Title II, that gives financial regulators the authority to take over a failing financial firm and liquidate it—an alternative to the government’s 2008 strategy of bailing out banks by handing them equity capital.
Suggesting that Trump has not been captured by the banking lobby, at the same time a Trump administration is expected to embrace other aspects of the massive law, including efforts to boost the transparency of credit-rating firms and regulate derivatives products.
Some more details:
Much of the policy work to date appears to overlap with Republican-backed legislation to replace Dodd-Frank that was written by House Financial Services Committee Chairman Jeb Hensarling (R., Texas.). Mr. Hensarling’s committee approved the bill in September by a vote of 30-26, largely along party lines. Mr. Hensarling is under consideration to serve as Mr. Trump’s Treasury secretary, other people familiar with the matter said.
Unlike other parts of Dodd-Frank, Title II is staunchly supported by large banks. They say it is proof that bailouts are a thing of the past. Some Republicans, however, would rather put big financial firms through bankruptcy. They believe Title II as it stands is simply a bailout by another name.
These Republicans especially dislike a provision that allows the government to temporarily lend money to a failing bank so it doesn’t collapse while the government unwinds it. In a quirk, the Congressional Budget Office views this part of the law as a liability for the federal government. That means that any legislation repealing the section looks attractive because it saves money, according to the CBO.
It is likely that the final outcome of this work in progress may still change as Trump’s financial policy team is still being assembled and its priorities could change. The WSJ also adds that Trump’s team has tapped Paul Atkins, a former Republican member of the Securities and Exchange Commission and longtime Dodd-Frank critic, to recommend policies on financial regulation.
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