The first three weeks of the Trump presidency have been full of activity. Within President Trump’s first few hours in office, he was signing executive orders, and he does not appear to be slowing down any time soon. On February 3rd, he signed an order that directs the Secretary of the Treasury to review the Dodd-Frank financial oversight law and report his recommendations.
President Trump and his administration believe that the law hinders economic growth and should be repealed. His order does not change any of the regulations currently in effect, and the final report from the Secretary of the Treasury is not due until summer. Nonetheless, the wheels of change are in motion.
In September 2016, Representative and Chairman of the House Financial Service Committee Jeb Hensarling of Texas authored The Financial CHOICE Act, targeting several key areas of Dodd-Frank for reform. It includes some of the same items expected to be part of the President’s review. Two are particularly noteworthy.
Reform opponents believe that repealing Dodd-Frank would leave the United States open to another financial crisis. The bill is authored to take this risk into account through the ratio requirements. The higher level of capital necessary to meet ratio requirements translates into banks having less capital available for riskier investment options. Banks would have the choice to sustain the higher ratios. If they choose not to opt in, they will remain under the current regulations. If they opt in and fail to meet the ratios, they would fall back under the Dodd-Frank regulations.
President Trump came out of the starting gates at full steam, but it’s unlikely he will sustain his current pace. His executive order to review the Dodd-Frank is merely the first step in a long race to reform financial regulation. We expect that implementing the changes will take time, but the pieces are in place to begin a productive debate. The HORNE team will continue to monitor the progress over the coming months and to share our findings and perspectives with you.
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