During the recent election campaign, President-elect Donald Trump pledged to repeal the Dodd-Frank Act if elected, criticizing the regulatory burdens it imposed on different portions of the financial services sector and contending that it discouraged lending by banks and impaired the growth of the U.S. economy. In an interview in May 2016, Mr. Trump stated that he would dismantle most of Dodd-Frank if elected, and that “Dodd-Frank is a very negative force, which has developed a very bad name.” Mr. Trump continued, “Dodd-Frank has made it impossible for bankers to function … It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”
Recently, Mr. Trump’s post-election position on Dodd-Frank has become slightly clearer. Shortly after the election, Mr. Trump’s campaign adviser Anthony Scaramucci said that the Trump administration will review the law and "the worst anti-business parts of it will be gutted." Additionally, on his transition web page, Mr. Trump’s agenda regarding Dodd-Frank is stated as follows:
“The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”
Much of this criticism of the Dodd-Frank Act (“the DFA”) has focused on its impact on the banking sector. There have not been any specific criticisms by Mr. Trump or his advisors directed to its impact on the insurance or reinsurance sectors. This article examines one possible alternative Republican legislative approach, based upon current policy proposals, focusing on possible changes to the DFA affecting the insurance and reinsurance sectors.
The Financial CHOICE Act – A Possible Approach?
A discussion of possible changes to the DFA affecting insurance or reinsurance should start with the basic Trump and Republican policy approaches to the regulation of insurance and reinsurance. Although the President-elect has not issued policy pronouncements concerning insurance or reinsurance regulation, the Republican approach historically, and specifically in response to the Dodd-Frank Act, has been to strongly support the state-based regulation of the business of insurance in the United States, and President-elect Trump has not made statements indicating a disagreement with that approach.
A number of bills have been introduced over the past year or two which would repeal or substantially modify all or part of the DFA. On September 9, 2016, Rep. Jeb Hensarling, the chairman of the House Financial Services Committee, introduced H.R. 5983, The Financial CHOICE Act of 2016 (“The Financial CHOICE Act”). This 512 page bill proposes some fundamental changes to the DFA. This bill is notable in part because it was introduced by the chairman of the Financial Services Committee, Rep. Hensarling, who has been mentioned as one of several candidates for the position of Treasury Secretary in the Trump administration. Even if he is not named Treasury Secretary, Rep. Hensarling may be a strong voice for the reform of financial services regulation in the Trump administration. This article focuses on The Financial CHOICE Act as a possible model for a Trump administration’s approach to the DFA and the regulation of the financial services sector of the U.S. economy.
The Executive Summary of the bill articulates “Key Principles” underlying The Financial CHOICE Act:
- Economic growth must be revitalized through competitive, transparent, and innovative capital markets;
- Every American, regardless of their circumstances, must have the opportunity to achieve financial independence;
- Consumers must be vigorously protected from fraud and deception as well as the loss of economic liberty;
- Taxpayer bailouts of financial institutions must end and no company can remain too big to fail;
- Systemic risk must be managed in a market with profit and loss;
- Simplicity must replace complexity, because complexity can be gamed by the well-connected and abused by the Washington powerful; and
- Both Wall Street and Washington must be held accountable.
Notably, the Executive Summary of The Financial CHOICE Act does not mention either insurance or reinsurance, nor do any of the policy prescriptions laid out in that document relate directly to the insurance or reinsurance sectors.
The Comprehensive Summary of The Financial CHOICE Act begins with an outline of the provisions of the bill:
- The Dodd-Frank Off-Ramp for Strongly Capitalized, Well-Managed Banking Organizations;
- Bankruptcy Not Bailouts;
- Repeal of the Financial Stability Oversight Council’s SIFI Designation Authority;
- Reform the Consumer Financial Protection Bureau;
- Relief from Regulatory Burden for Community Financial Institutions;
- Federal Reserve Reform;
- Upholding Article I: Reining in the Administrative State;
- Amend Dodd-Frank Title IV;
- Repeal the Volcker Rule;
- Repeal the Durbin Amendment;
- Eliminate the Office of Financial Research;
- SEC Enforcement Issues;
- Reforms to Title IX of Dodd-Frank;
- Capital Formation;
- Repeal Specialized Public Company Disclosures for Conflict Minerals, Extractive Industries, and Mine Safety; and
- Improving Insurance Regulation by Reforming Dodd-Frank Title V.
The insurance “improvement” discussion fills only two of the 126 pages of the Comprehensive Summary, and addresses only one modest change concerning only the insurance/reinsurance sectors: combining the positions of the Director of the FIO and the FSOC’s independent insurance representative into a single position. It also discusses the repeal of FSOC’s SIFI designation authority, which would have an impact on some of the largest insurance and reinsurance companies.