Politics

President Trump's Latest Executive Order Is Great News for Big Banks

February 3rd 2017

By:
Lucy Tiven

President Donald Trump ordered a review of financial industry regulations in an executive order issued Friday.

The directives appear to target the Dodd-Frank Act, an expansive reform bill signed into law in 2010 by Barack Obama in response to the 2008 financial crisis.

trump

The language of the Trump-issued order is does not explicitly name Dodd-Frank, but seems to target it.

It directs the Treasury Department to "regulate the United States financial system" in accordance with a set of "core principals" and produce reports delivered to the president within 120 days. While only Congress can repeal the regulations put in place through Dodd-Frank, Trump's directive grants the Department of Treasury significant authority that could potentially roll back the enforcement of Dodd-Frank reforms.

In a Friday press conference, White House Press Secretary Sean Spicer announced the action and called the Dodd-Frank Act "a disastrous policy."

Spicer said the reforms were overreaching and detrimental to the national economy, also preventing job creation.

"Dodd-Frank is a disaster," Trump allegedly said in meeting with small business owners, according to the Times. "We're going to be doing a big number on Dodd-Frank."

Princeton University history professor Kevin Kruse rebutted Spicer's claim that the act "hindered our markets" in a tweet.

With the Dodd-Frank reforms in jeopardy, it is worth revisiting what the Act accomplished.

1. Dodd-Frank put capital requirements on banks.

Wall Street

Under the reforms put in place by the law, banks keep the bulk of their assets in cash and government securities rather than loans so as to prevent a financial crises. It also mandates that banks worth over $50 billion undergo yearly reviews from the federal reserve, USA Today explains. These reviews seek to determine if the banks are following the law and could weather a financial crisis akin to that inherited by Obama in his first term.

2. Dodd-Frank also led to tighter regulations on loans.

House for Sale

One of the main drivers of the 2008 financial crisis, which precipitated the creation of Dodd-Frank, were lending practices that resulted in unqualified people signing up for mortgages they couldn't afford. Under Dodd-Frank, mortgage brokers need to verify the employment and credit of lenders, rather than targeting people with "no income, no assets and no job."

3. Dodd-Frank created the Consumer Financial Protection Bureau.

warren rally

It was an idea proposed several years earlier by then Harvard Professor Elizabeth Warren, now the junior Democratic Senator from Massachusetts. It's tasked with going after financial institutions for violating the rights of consumers.

New York Times columnist Paul Krugman, a liberal economist, praises the bureau for acting as a watchdog, citing the agency "cracking down" on banks slamming people with egregious overdraft fees as an example.

Warren defended Dodd-Frank on Twitter Friday.

Some critics have said the CFPB does not serve its stated purpose and is rife with conflicts of interest, differences of opinion, and bureaucratic red tape, the Washington Post reported in 2014. Others said the agency's jurisdiction went too far.

“I think the bureau sees consumers taking out payday loans and believes ‘there must be something wrong here, because consumers really wouldn’t choose these products," former CFPB official Leonard Chanin told the Post. "There is great risk in assuming you know what is best for the consumer.”

There is evidence that it's in the public's interest to keep the CFPB around.

On January 19, the CFPB sued Minnesota-based TCF National Bank, which has more than 300 branches in Arizona, Colorado, Michigan, Minnesota, South Dakota and Wisconsin, for subjecting consumers to hefty overdraft fees. Also in late January, the bureau filed a lawsuit against Navient, the largest student loan provider in the U.S. alleging it “failed to provide the most basic functions of adequate student loan servicing at every stage of repayment for both private and federal loans,” as the Los Angeles Times reports.