Trump transition team vows to dismantle Dodd-Frank law

Donald Trump’s transition team says he’ll “dismantle” the Dodd-Frank law, Barack Obama’s response to the GFC.

Jeb Hensarling has proposed an alternative to the Dodd-Frank law. Pic: Bloomberg

President-elect Donald Trump’s transition team has promised to dismantle the 2010 Dodd-Frank law, signalling the incoming administration will seek to remake the way the US oversees the financial sector.

The Republican election sweep and Mr Trump’s commitment to focus on the issue have the GOP salivating over a litany of Dodd Frank changes that until recently stood little chance of avoiding President Barack Obama’s veto.

The long list includes everything from regulatory exemptions for community banks and regional banks to a new regime for insurers and asset managers to significant curbs on the federal government’s recently-expanded influence over consumer-finance products, such as mortgages and payday loans.

The brief note on Mr Trump’s new website was the first time since Tuesday’s election that the president-elect addressed financial regulatory policy. It was consistent with Mr Trump’s campaign rhetoric, blaming the Obama administration’s signature response to the financial crisis for a tepid economy and promising to “replace it with new policies to encourage economic growth and job creation,” but providing few details.

Another sign Mr Trump may make Dodd-Frank overhaul a priority may be the news that his transition team is considering as a candidate for Treasury Secretary one of the leading critics of Dodd-Frank on Capitol Hill. People familiar with the matter said that in their preliminary discussions about possible candidates to fill that slot, they are looking at Jeb Hensarling, chairman of the House Financial Services Committee, who has crafted a deregulatory alternative to the 2010 law.

Whether Mr Trump can keep his vow to up-end Dodd-Frank and how far those changes will reach depends in large part on what happens in Congress. Financial regulation hasn’t been mentioned by Mr Trump as something he would thrust on the White House’s agenda during his first 100 days in office, and Republicans are tempering expectations. “I don’t think that you’re going to see major efforts to throw out Dodd Frank wholesale,” said a person who has advised the Trump campaign on regulatory policy.

Barack Obama signs Dodd-Frank law.

If financial policy initially takes a back seat to other Republican priorities, such as health care, the process of changing Dodd Frank would begin not with the White House but with the congressional committees that oversee the financial sector.

Mr Hensarling last year laid out a blueprint for replacing Dodd-Frank that many observers view as a starting point. In an interview overnight (AEDT), Mr Hensarling said the Trump team’s statement “is music to my ears,” and that he planned to make the bill, dubbed the Financial CHOICE Act, his priority next year.

He said he had spoken with Mr Trump’s team about the legislation in the past, and he believes they are “favourably disposed to it.”

“They will have independent opinions, but I think they like the thrust of the legislation and many major components of it,” he said.

As for the prospect of him taking the Treasury slot, the Texas lawmaker said he would “certainly have the discussion” if the Trump administration came calling, “but I’m not anticipating the telephone call.”

Mr Hensarling’s bill is built around a trade-off: Banks can free themselves from various regulations, such as tough stress testing, so long as they maintain capital equal to at least 10 per cent of total assets and high ratings from the regulator. That would immediately help many small, locally-focused banks that tend to be better-capitalised but not necessarily megabanks with sprawling international operations that generally have capital levels below that number.

Mr Hensarling, in the interview, said he would try to convince Mr Trump’s team to support his approach instead of their campaign promise to reinstate the Depression-era Glass-Steagall law separating traditional lending from investment banking.

Mr Hensarling’s bill also would make other significant changes, such as requiring that many financial regulations be subject to cost-benefit analysis for the first time and tying the budgets of regulatory agencies, including the Consumer Financial Protection Bureau, to congressional appropriations. Currently, the CFPB has enjoyed a high level of independence by getting its funds from revenues insulated from the legislative process.

In the Senate, Democratic votes may be necessary to pass Dodd-Frank changes, and if Republicans pressed to weaken core parts of the law, Democrats may attack them for being too close to Wall Street, a criticism that could bite hard as big banks remain unpopular in the wake of the Wells Fargo & Co phony-account scandal.

It is possible Democrats could seek to block GOP’s efforts they view as overreach, but lobbyists and congressional aides are optimistic that some moderate Democrats up for re-election in 2018 in states that voted for Mr Trump will be inclined to compromise. Republicans also may come under pressure to change Senate rules to ease passage of controversial legislation, but it is far from clear they would make that controversial move.

Dow Jones Newswires