In a move that many are calling “the stuff of banker’s dreams,” Gary Cohn, White House Economic Council director, said the White House intends to “rollback” the regulations imposed on the financial industry under the Dodd-Frank law. Cohn made the statement in an interview published in the Wall Street Journal.
Trump’s executive order on the matter directs regulators to develop a plan to scale back Dodd-Frank. The administration also wants to limit the reach of the Consumer Financial Protection Board (CFPB), which was created under Dodd-Frank. The CFPB oversees various financial products such as mortgages and credit cards, and has proved to be a bit irksome to financial institutions.
The president also signed a separate order that delays a rule imposed by the Obama administration, that forces retirement advisers to act in their “client’s best interests.”
Speaking to the Journal, Cohn, said the orders were a “table setter for a bunch of stuff that is coming.”
Boon or Bust?
Will the eventual repeal or significant overhaul of Dodd-Frank, and the possible dismantling of the CFPB, prove to be a boon to the banking industry as the White House believes, or could it lead to another financial crisis that spawned the legislation in the first place? That remains to be seen, however, a prudent rollback of the regulations should ease the kind of encumbrances on financial intuitions that have lowered profits and stifled credit and investment.
What is known for certain is that Dodd-Frank and related rules have placed a huge regulatory burden on financial institutions, with the cost of compliance with the rules running into the billions. That is a cost that small community banks in particular, have had a very hard time absorbing, and has certainly shackled their ability to lend.
Dodd-Frank has been described by some republican lawmakers and industry professionals as “Obamacare for Banks.” President Trump is taking a similar approach to dismantling it, as he is to the Affordable Care Act, by issuing an executive order in the early days of his administration. Like the ACA, Dodd-Frank is a very complex law, consisting of 850 pages with over 400 rules, so repealing or modifying it, could be difficult, but it is a challenge that is welcomed by the banking industry and may very well benefit consumers.
As Cohn put it, “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year. The banks are going to be able to price products more efficiently and more effectively to consumers.”
Understanding the implications of repealing or modifying banking regulations such as Dodd-Frank, can be complex. If you would like to benefit from our expertise in these areas or if you have further questions on this Advisory, do not hesitate to contact our Financial Institution specialists, or call us at 1-800-239-1474.