U.S. President Donald Trump on Friday ordered a review of key reforms enacted after the 2008 financial crisis, in the first step toward scaling back toughened regulations on the banking industry.
The so-called Dodd-Frank law aimed to curb the actions of the finance sector that led to the “Great Recession,” but critics claim it created red tape that stifles the industry. “Today we are signing core principles for regulating the United States financial system,” Trump said in the Oval Office as he signed two executive orders aimed at scrapping parts of the 2010 law. “Doesn’t get much bigger than that, right?” he said.
The president’s move gives the upper hand to opponents of the landmark legislation who have long battled attempts to rein in Wall Street excesses.
Addressing a White House meeting with industry leaders earlier in the day, Trump said: “We expect to cut a lot out of Dodd-Frank.”
“I have friends who can’t start businesses because the banks wouldn’t let them borrow because of rules and regulations and Dodd-Frank.” Trump’s directives were quickly denounced by Senator Chuck Schumer, the leader of the minority Democrats in the Upper House of Congress, who vowed to fight to prevent the law’s undoing.
“President Trump promised to stand up to the big banks, now he’s letting them write the rules of the road,” Schumer said in a statement. Like Trump, the Democratic senator hails from New York state, home to the financial industry’s largest global hub.
The mammoth Dodd-Frank legislation was adopted after a systemic crisis in the global financial system caused by the failure of widely traded but complex derivatives backed by poor-quality mortgages. The resulting taxpayer bailout of failing banks and financial institutions deemed “too big to fail,” or so large their collapse could cause widespread economic harm, provoked lasting public outrage.
“If we allow Wall Street to go unchecked again, it’s only a matter of time before history repeats itself,” Democratic Congresswoman Chellie Pingree said on Twitter.
The Dodd-Frank rules required banks to demonstrate their solid financial grounding in annual “stress tests” as well as refrain from certain risky transactions, and significantly expanded the role securities regulators play in overseeing the investment industry.
Trump’s twin decrees came on the heels of his meeting with business leaders including chiefs of the largest banks and investment firms, such as JP Morgan Chase, Blackstone and BlackRock, which may stand to gain from looser rules.
The directives will also delay a fiduciary rule adopted under the previous administration, which had yet to take effect but would have required investment advisers handling retirement funds to put their clients’ interests before maximizing their own profits.
Among the many provisions of the 2,300-page legislation, Dodd-Frank also gave rise to the Consumer Financial Protection Bureau, an agency meant to police how banks and others provide services to the public.
Republicans and industry lobbyists have made no secret of their criticism of the CFPB and other checks on industry imposed by Dodd-Frank, waging battles against it in court and on Capitol Hill. The Federal Reserve, which plays a key role in banking regulation, had yet to react to Trump’s move.
Any repeal of Dodd-Frank itself would require congressional action but the Trump White House is keen to send a signal that it is ready to slash red tape.
Gary Cohn, the former Goldman Sachs president who now heads Trump’s National Economic Council, told The Wall Street Journal ahead of the signing that freeing up the financial services sector again would be a boon to consumers.
“The banks are going to be able to price products more efficiently and more effectively to consumers,” Cohn was quoted as saying.
John Berlau of the Competitive Enterprise Institute welcomed the moves, saying they would “greatly benefit middle-class investors, entrepreneurs, and consumers.” But Bartlett Naylor of the consumer activist group Public Citizen called Trump’s actions “a betrayal of his campaign promises” and a gift to big banks.
Market analyst Jasper Lawler at the London Capital Group believes that “unwinding some of Dodd-Frank is a good thing because it will enable smaller community banks to compete, offering competition to consumers.” However, repealing too much of Dodd-Frank “puts the entire system at risk of a repeat of 2008,” the analyst said.