The executive order Trump will sign on the 2010 Dodd-Frank law on Wall Street reform will be largely symbolic towards rolling back the regulations that Trump sees as hurting the economy, because only Congress can rewrite the legislation.
Even though the directives to agencies to examine possible changes to the landmark law may not have teeth, Wall Street embraced the possibility of simpler bank regulations by pushing stocks up in morning trade.
"The first thing that we are going to attack is regulation, over-regulation. It's not just in the financial markets, it's in all markets," said White House National Economic Council Director Gary Cohn on Fox Business Network. "So today you're going to start seeing the beginning of some of our executive actions to roll back regulation in the financial services market."
Dodd-Frank, the biggest Wall Street regulatory overhaul in decades, set out a long list of rules intended to keep the financial system from a repeat of the 2007-09 crisis, including strict new capital standards on banks and tighter oversight of derivatives. It also created a new consumer protection watchdog to guard against predatory lending and called for annual stress tests for banks considered "too big to fail".
Analysts said Trump could make many changes without involving lawmakers, such as by appointing new personnel or simply choosing not to enforce rules already enacted.
"A lot of the regulations of Dodd-Frank required a bit of a cop-on-the-beat if you will, to ensure enforcement and if you have a different cop-on-the-beat, they enforce different rules, or they enforce the rules differently," said FBR & CO financial policy analyst Edward Mills. "And there are a lot of Dodd-Frank rules that are subjective and so what one regulator would view as okay, another might say it’s not okay."
Dodd-Frank was one of the crowning achievements of President Barack Obama, and many independent agencies' regulatory heads who were appointed by Obama plan to stay until their terms end, along with their staffs.
Trump cannot fire heads of independent agencies, including the three top bank regulators: Federal Reserve Chair Janet Yellen, Comptroller of the Currency Thomas Curry, and Federal Deposit Insurance Corporation Chairman Martin Gruenberg.
The terms of two progressive liberals, Melvin Watt, director of the Federal Housing Finance Agency that oversees Fannie Mae and Freddie Mac, and Richard Cordray, the Consumer Financial Protection Bureau director, span past the end of this year. They often take stands on issues opposite of Trump's, and there are no consequences if they do not carry out his agenda.
Republican lawmakers are pushing Trump to fire Cordray, but a federal court's decision giving him power to do so has been stayed pending appeal. Some CFPB expect Trump to try to replace Cordray nonetheless, which would probably lead Cordray to sue.
Many prominent U.S. financial leaders support the law. Chicago Fed President Charles Evans said on Friday Dodd-Frank "has largely been helpful" and the stress tests have led to a banking system with "more and better capital."
"I’ve heard there’s a regulatory compliance burden and it has increased, there’s no doubt about it," he said. "But one reason why they are there is because banks are involved with a variety of customers and while I’d like to think that everybody is just an upstanding law-abiding person there’s a lot of nefarious activity and potentially terrorist activity."
Earlier this week during a meeting with business owners, Trump described the law as "a disaster," a sentiment shared by fellow Republicans.
On Friday, the Republican-led Congress killed a Dodd-Frank regulation regarding payments that big energy companies make to foreign governments. Also, the House Financial Services Committee is working on a complete Dodd-Frank revamp and the nominee for Treasury Secretary, Steve Mnuchin, has been critical of Dodd-Frank.
Republican Congressman Sean Duffy said earlier this week that House Financial Services Committee Chairman Jeb Hensarling is expected to advance his CHOICE Act legislation to weaken Dodd-Frank later this month.
One Dodd-Frank provision ripe for Republican action is the "Volcker rule" that greatly restricts how banks can make bets with their own money. Banks would like to see the definition of what counts as a bet curtailed from its current wide determination.
LABOR DEPARTMENT RULE ALSO UNDER FIRE
The Labor Department's retirement advice rule, set to take effect in April, is not part of the Dodd-Frank law, but has long been a thorn in the side of the financial services sector.
Issued by the Obama administration in 2016, the rule requires brokers to act as "fiduciaries," or in their clients' best interests, when they are advising them about their retirement plans.
Trump plans on Friday to issue a memo asking the Labor Department to determine whether the rule should be revised or be scrapped altogether, according to the White House.
Opponents of the rule argued it would raise costs and make small accounts unprofitable.
Trump's memo on the fiduciary rule is likely to spark major pushback by Democrats, who say the rule is key to protecting consumers from conflicts of interest.
The U.S. Chamber of Commerce and other financial services trade groups have filed a legal challenge to the rule seeking to have it overturned. The federal judge reviewing the case signaled in a court filing on Thursday she plans to issue a decision no later than Feb. 10.
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