Let’s hope the president is right in wanting to replace the Dodd-Frank Act
PRESIDENT Donald Trump has been very busy. Between Jan 20, the day he began his four years in the Oval Office, and Feb 16, he issued 12 executive orders and 11 presidential memoranda.
In a jaw-dropping press conference on Thursday, during which he relentlessly accused the media of producing fake news, Trump still managed to highlight his administration’s productivity.
“This last month has represented an unprecedented degree of action on behalf of the great citizens of our country. Again I say it, there has never been a presidency that’s done so much in such a short period of time. And we haven’t even started the big work yet. That starts early next week,” he said.
Most notable are the moves to make good his chief campaign pledges. He withdrew the United States from the Trans-Pacific Partnership. He took the first steps towards reversing Obamacare. He made it government policy to build a wall along the country’s border with Mexico.
And on Jan 27, he sparked a furore when he signed an anti-terrorism executive order that barred citizens of Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen from entering the United States for at least 90 days.
But back when Trump was crisscrossing the country to win support, he also made some promises that are meant to win over fellow businessmen.
Last September, in a speech at the New York Economic Club, he outlined his plan for an “American economic revival”. This included launching a deregulation drive.
“One of the keys to unlocking growth is scaling back years of disastrous regulations unilaterally imposed by our out-of-control bureaucracy,” he argued. “Regulations have grown into a massive, job-killing industry – and the regulation industry is one business I will put an end to.”
He proposed a moratorium on new federal regulations that are not compelled by Congress or public safety, and added that he would eliminate “all needless and job-killing regulations now on the books”.
He didn’t mention the banking sector and the capital market in the speech, but on Feb 3, he made “freeing up the financial system” part of his administration’s agenda.
He issued an executive order and a presidential memorandum that day. The order sets out seven principles of regulation that will apply to the US financial system, while the memorandum instructs the US Labour Department to review its rules on advice given to retirement investors.
The White House press office describes these as actions “to better enable the financial system to promote job creation and serve all Americans”.
That may be so, but they’re also the first shots fired in the Trump presidency’s fight against what it views as overregulation. This is a battle that calls for precision, deep knowledge and understanding, and clear, all-round vision. Sheer firepower alone isn’t enough.
Sure, you counter overregulation by rolling back unnecessary rules, but first, you have to be sure that the rules are indeed excessive. And when such rules are removed, will there be a vacuum that invites unintended consequences? If there are replacement rules, can they do a better job?
In explaining the rationale for the memorandum, Trump says his administration wants to empower Americans to make their own financial decisions, and to facilitate their ability to build wealth and save for retirement.
This is why he directed the Labour Department to determine whether the regulatory package known as the Fiduciary Duty Rule hampers the ability of Americans to gain access to retirement information and financial advice.
It appears that the Fiduciary Duty Rule is one of the “needless and job-killing regulations” that Trump wants to get rid of.
Another one on the chopping block is the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was introduced in 2010 to fix major problems exposed by the 2007-2008 financial crisis. Trump’s Feb 3 executive order is seen as a preliminary step towards repealing the Act.
The order’s seven so-called Core Principles for regulating the financial system are rather generic and familiar; there’s little debate over them. What’s getting more attention is the president’s directive to the treasury secretary to consult with the heads of financial regulatory agencies on the extent to which current laws, regulations and policies promote the Core Principles.
He also wants the treasury secretary’s report to discuss what have been done and are being done to promote and support the Core Principles.
“That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the US financial system in a manner consistent with the Core Principles,” Trump says in the executive order.
In an interview with Reuters last May, he made it apparent that he wasn’t a fan of the Dodd-Frank Act.
“Dodd-Frank has made it impossible for bankers to function. It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop,” he said.
He has since made similar remarks several times.
If Trump gets his way, the Dodd-Frank Act will be replaced by the Financial Choice Act, whose Bill is authored by Republican Congressman Jeb Hensarling, who chairs the House Financial Services Committee.
The supervision of Wall Street is set to be overhauled and there’s reason for all of us to be nervous. As the 2007-2008 financial crisis has shown, a meltdown of the US financial system is scary and sends shockwaves across the globe. Will Trump’s appetite for deregulation stimulate the economy without increasing the risks?
Whether he’s right or wrong, the impact will likely be huge.
Executive editor Errol Oh dearly hopes that people who come up with fake news will end up being paid with fake money.
Did you find this article insightful?