If you're like me, you are constantly receiving alerts from consultants, law firms, policy shops and others, all predicting how the Trump Administration is going to dramatically change, or even gut, Dodd-Frank and other U.S. financial regulations. As you read these prognostications, keep in mind just how well pollsters, experts and markets did in predicting the election outcome. The reality is, nobody knows what changes the future Trump Administration may make. The only certainty is that determining at this point how Mr. Trump might revamp our financial regulations is a fool's folly.
So if we don't really know what is going to happen to Dodd-Frank and other financial regulations, what should we do now? Actually, not much. Take a breath and be patient. Changing course in anticipation of what cannot be anticipated will not be helpful. But here is what you should be doing now.
What to Do Now
One. Keep in mind that many of the changes that came out of Dodd-Frank had their origination in the 2008 G20 commitment to fundamental reform of the global financial system. That is, many of the elements of Dodd-Frank either have been or are in the process of being implemented on a global basis. It would be very hard for the U.S. to reverse course on the parts of Dodd-Frank that are now entangled in the new global regulatory web. The economic as well as political cost of an about-face would be enormous. So if you want to try to predict where Mr. Trump may try to chip away, look at the parts of Dodd-Frank and other U.S. financial regulations that are unique to the U.S. or are outside of the scope of the G20 agreement. The Consumer Financial Protection Bureau anyone?
Two. As others have suggested, you can look at the proposals that have come out of the House of Representatives over the last year or so—such as the Financial CHOICE Act. Doing so might provide a sense of areas of possible alignment between Republicans and the President-Elect. However, remember that Republicans do not have a filibuster proof majority in the Senate. It would seem foolish to predict the outright dismantling of Dodd-Frank notwithstanding the statements made by Mr. Trump to that end. Parts of Dodd-Frank near and dear to the hearts of Democrats such as Elizabeth Warren are likely to become lines in the sand. Consumer Financial Protection Bureau anyone?
Three. Look at the Trump transition team, particularly, those charged with focusing on economic issues and regulatory reform. These are the folks charged with laying the groundwork for the opening salvos of the Trump Whitehouse. For example, David Malpass, who is overseeing the transition of the Treasury Department was chief economist at Bear Stearns prior to its collapse. He, and other senior economic advisors for Mr. Trump have been actively speaking to the media and writing opinion pieces as to the financial regulatory reform agenda that we are likely to see in the early months of the Trump Administration.
Four. As everyone knows, Dodd-Frank, and other recent regulatory legislation, are extremely complicated, confusing, sometimes contradictory and difficult (and costly) to implement. Even though the Dodd-Frank statute itself was almost a thousand pages, it is so complex, Congress found it necessary to delegate much of the interpretation and implementation of its requirements to multiple regulatory bodies. Dodd-Frank contains almost 400 rulemaking requirements which has resulted in thousands and thousands of pages of rules, interpretations and regulatory guidance issued in the past several years by the CFTC, SEC, FDIC and others. It will be far easier for the Trump Administration to put pressure on regulators rather than seeking major regulatory repeal. Look to areas of Dodd-Frank in which regulators can be pushed to streamline and simplify the regulatory process, particularly where Congressional action is not required. The President-Elect can have an early and potentially significant impact through the people he appoints to these regulatory bodies.
Five. Did I say, take a breath and be patient? I did, but it’s worth repeating.