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03Feb17

Trump Moves to Roll Back Obama-Era Financial Regulations

President Trump on Friday moved to chisel away at the Obama administration's legacy on financial regulation, announcing steps to revisit the rules enacted after the 2008 financial crisis and to back away from a measure intended to protect consumers from bad investment advice.

After a White House meeting with executives from Wall Street, Mr. Trump signed a directive aimed at the Dodd-Frank Act, crafted by the Obama administration and passed by Congress in response to the 2008 meltdown. He also signed a memorandum that paves the way for reversing a policy, known as the fiduciary rule, that requires brokers to act in a client's best interest, rather than seek the highest profits for themselves, when providing retirement advice.

The executive order affecting Dodd-Frank is vague in its wording and expansive in its reach. It never mentions the law by name, instead laying out "core principles" for regulations that include empowering American investors and enhancing the competitiveness of American companies. Even so, it gives the Treasury the authority to restructure major provisions of Dodd-Frank, and it directs the Treasury secretary to make sure existing laws align with administration goals.

Mr. Trump's action on the fiduciary rule, which Democrats and consumer groups immediately denounced as a gift to Wall Street, could have a more concrete impact. His memorandum directs the Labor Department to review whether the rule may "adversely affect" investors' ability to access financial advice – and if it does, it authorizes the agency to rescind and revise the rule.

Supporters of the rule describe it as a basic consumer protection to prevent brokers from taking advantage of vulnerable clients. The industry argues that the rule will expose it to a torrent of lawsuits and will increase costs that firms will pass on to consumers.

Taken together, Mr. Trump's actions on Friday constitute an extensive effort to loosen regulations on banks and other major financial companies, even though the president campaigned as a champion of working Americans and as a critic of Wall Street elites. Mr. Trump said on Friday that his actions were intended to help both Wall Street and workers as his administration eases constraints on banks and allows them to lend more to companies, which could then hire more workers.

"We expect to be cutting a lot out of Dodd-Frank, because frankly, I have so many people, friends of mine that had nice businesses, they can't borrow money," Mr. Trump said in the State Dining Room during his meeting with business leaders. "They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank."

The 2010 act reined in mortgage practices and derivatives trading and curbed the ability of banks to trade with their own money in a measure known as the Volcker Rule. Despite the president's concerns, banks have increased their consumer lending like credit cards and auto loans, and have generally expanded their lending to businesses.

As he announced his goals on financial deregulation, Mr. Trump sat beside Stephen A. Schwarzman, the chief executive of the private equity giant the Blackstone Group and the chairman of his business council, who said the panel would "advise the government on the areas where we could do things a lot better in our country, for all Americans."

The president had praise for Jamie Dimon, whose bank, JPMorgan Chase, was often a target of regulatory actions by the Obama administration.

"There's nobody better to tell me about Dodd-Frank than Jamie, so you're going to tell me about it," Mr. Trump said.

The meeting underscored the degree to which the architects of Mr. Trump's economic strategy are now some of the people he denounced in his campaign, which ended with a commercial that described "a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations."

The advertisement flashed an image of the chief executive of Goldman Sachs, which has become a virtual feeder for top Trump administration officials. Steven Mnuchin, his nominee for Treasury secretary; Gary Cohn, the chairman of his national economic council; and Stephen K. Bannon, Mr. Trump's chief strategist, all had worked at Goldman.

"The administration apparently plans to turn over financial regulation to Wall Street titan Goldman Sachs, and make it easier for them and other big banks like Wells Fargo to steal from their customers and destabilize the economy," said Lisa Donner, the executive director of Americans for Financial Reform, an advocacy group that supports Dodd-Frank. "That betrays the promises Trump made to stand up to Wall Street."

The president's actions came just hours after congressional Republicans voted to repeal an unrelated Dodd-Frank rule, a sign that Mr. Trump will have some support on Capitol Hill to challenge a law he has called "a disaster," and promised to do "a big number" to reshape.

Now emboldened, House Republicans are also moving legislation to "repeal and replace" Dodd-Frank, though they would need 60 votes to accomplish that, which seems unlikely. And they are considering potential ways to use the budget process to defund some aspects of the law, all of which comes on top of the president's executive actions.

While the president cannot unwind Dodd-Frank with the stroke of a pen, his orders set the tone for the regulatory agencies enforcing the rules, including the Securities and Exchange Commission. And the orders could portend even more executive actions that direct the regulators to halt financial regulation.

The president's approach to regulation sharply contrasts with his predecessor. President Barack Obama once remarked, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."

Wall Street is expected to lobby Mr. Trump's financial regulators, at the S.E.C. and elsewhere, to modify rules and enforce them lightly.

But there is a limit to what the regulators can do. Dodd-Frank is still the law, and it requires the regulators to enforce hundreds of Dodd-Frank rules. Under administrative law, the regulators must also formally propose any new rules and seek public comment.

The Trump administration may have an easier time voiding the Obama-era Labor Department rule requiring brokers to act in a client's best interest when providing retirement advice. That rule is not explicitly part of Dodd-Frank.

White House officials had considered a far more aggressive assault on the fiduciary rule, which would have immediately halted it for six months or more while the Labor Department reviewed its effects. The final memorandum appears to leave the regulation in place, but it also goes a step further, instructing the department to undertake what could be a lengthy new process for rewriting the rule if it is found to harm investors or financial companies.

"President Trump's action will make it harder for American savers to keep more of what they earn," Senator Sherrod Brown, the ranking Democrat on the Senate Banking Committee, said in a statement.

But Representative Ann Wagner, Republican of Missouri, called the effort to stop the fiduciary rule "a labor of love for me."

Even before the president acted, congressional Republicans on Friday started to chip away at Dodd-Frank. The Republicans used an unusual parliamentary procedure to repeal a rule that stems from the law with only a majority of votes, rather than the 60 votes needed to overcome a filibuster.

The Senate voted 52 to 47 to void the rule, which requires oil companies to publicly disclose payments made to governments when developing resources around the world. The rule, which Dodd-Frank assigned to the S.E.C. to enforce, was tangential to the law's mission of reforming Wall Street, but lawmakers included it anyway with the hope of exposing bribes and corruption.

Some of the largest American oil companies objected to the S.E.C. rule, including Exxon Mobil, arguing that it put them at a competitive disadvantage with foreign companies. Rex W. Tillerson, Mr. Trump's secretary of state, personally lobbied against it when he was Exxon's top executive, according to public accounts.

Republicans are not done. Under the Congressional Review Act of 1996, Congress has at least 60 days to introduce legislation repealing major new regulations.

Already this week, Republicans introduced legislation under the act to repeal a Consumer Financial Protection Bureau rule for prepaid debit cards.

The Congressional Research Service has determined that rules sent to Congress on or after June 13 last year are vulnerable to repeal. The S.E.C. rule just missed that cutoff; it became final on June 27, making it fair game for Republicans to repeal, over the objections of antipoverty groups like Oxfam and the One Campaign.

"If President Trump is serious about his promise to 'drain the swamp' and protect American security, he will veto this dangerous bill immediately," Isabel Munilla, an Oxfam official, said in a statement.

[Source: By Ben Protess and Julie Hirschfeld Davis, The New York Times, Washington, 03Feb17]
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