Last week, through the issuance of two executive orders, President Donald Trump began to follow through on his campaign promise to reduce the quantity of all federal regulations and took initial steps to consider the effectiveness of laws and regulations impacting the financial services industry. The first executive order, issued on January 30, requires that, for the remainder of fiscal year 2017, all federal agencies identify at least two existing regulations for repeal whenever they propose or promulgate a new regulation. Moreover, the sum of the incremental costs of any new regulations and repealed regulations must not exceed zero. To assist agencies in implementing this requirement, the Director of the Office of Management and Budget was instructed to provide guidance to help standardize the measurement and forecast of costs and to determine what constitutes a new and offsetting regulation. For future fiscal years, the Director of OMB will tell agencies the amount of incremental costs they each will be allowed in implementing new requirements and repealing old ones. Independent agencies, like the Commodity Futures Trading Commission, do not appear formally covered by this executive order, but may nonetheless voluntarily apply its mandates. Separately, on February 3, President Trump ordered the Secretary of the Treasury to consult with the heads of member agencies of the Financial Stability Oversight Council, which includes, among others, the CFTC and the Securities and Exchange Commission, to assess whether any current laws and regulations are inconsistent with certain enumerated “core principles” for the optimal regulation of financial services. This appears to be a first step in a potential dismantling of all or some provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the White House has termed “a disastrous policy that’s hindering our markets, reducing the availability of credit, and crippling our economy’s ability to grow and create jobs.” (Click here to access statements made by Press Secretary Sean Spicer on February 3.) According to the President, optimal regulations should, among other things, “empower Americans to make independent financial decisions and informed choices in the marketplace;” avoid taxpayer-paid bailouts; promote “economic growth and vibrant financial markets through more rigorous regulatory impact analysis”; make sure American companies are competitive with foreign firms and “restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.” The Treasury Secretary is required to report back to the President with his initial findings by June 3. (The US Senate has not yet confirmed President Trump’s nominated Treasury Secretary, Steven Mnuchin.)
My View: It is healthy every so often to look back and evaluate the effectiveness of previously adopted laws and regulations. President Ronal Reagan ordered such a review promptly after becoming president in 1981, and President Trump has ordered a similar review now. (Click here to access President Reagan’s equivalent executive order.) For the nation as a whole, this review might result in lesser regulation that could result in greater economic growth. For the financial services industry, such a review might result in the rollback of all or some of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act – including the so-called Volcker Rule – which in retrospect, may have constituted a too hasty and too broad response to the 2007-2008 financial crisis. Hopefully, however, the evaluative process does not become too politicized and regulations previously adopted for legitimate reasons are not eliminated wholesale. We, as a nation, cannot ignore, for example, that the financial crisis of 2007-2008 caused real suffering for many Americans. At its core, this crisis was caused by the over-extension of credit to under-qualified persons buying homes and for other purposes, and by the packaging of their debt into more and more exotic financial instruments that were not well understood or adequately overseen. For sure, the imposition of a myriad of new requirements under Dodd-Frank – including many that had nothing to do with the financial crisis (e.g., amendments to the Commodity Exchange Act regarding position limits) – was too severe and some of these provisions should be adjusted. But many requirements – including the obligation to report swaps transactions to impartial trade repositories to provide better transparency and to impose registration and certain conduct requirements on swap dealers – are sensible measures that will help prevent another similar meltdown. Hopefully, the review of regulations generally and financial services laws and regulations in particular (especially Dodd-Frank) ordered by President Trump will engender thoughtful reflection and result in just the right amount of revisions and not overkill.
- ion of Bridging the Week.)