Promised 'haircut' of financial regulations likely to be just a 'trim'
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President Trump has vowed “to do a big number” on the Dodd-Frank Wall Street Reform and Consumer Protection Act.  But Congress’ will in enacting it — and the raft of regulations that have been promulgated under the law — may not be so easy to dislodge from the American regulatory framework.

To begin with, there may not be as much appetite for a wholesale repeal of Dodd-Frank as President Trump might think. While the financial industry is naturally loathe to assume greater regulatory burdens, the painful wake of the 2008 financial crisis was a lesson for the public, many legislators and the financial industry as a whole.

Now that many of the Dodd-Frank regulations have been finalized — and banks, funds and derivatives traders have spent millions to bring themselves into compliance — many in the financial industry see no real benefit to spending millions more retooling their systems and personnel to go back to the old ways.

That said, with a Republican Congress generally in favor of deregulation and a Republican president ready to sign sweeping legislation, Dodd-Frank and its regulations are certainly susceptible. There are three main avenues of attack, but each path is paved with difficulties.

First, Congress could simply repeal the law. In this case, the key agencies supervising Dodd-Frank regulation — the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), Consumer Financial Protection Bureau (CFPB), Department of Labor (DOL) and others — would no longer be able to enforce any of the rules based on law that was repealed. 

The judiciary, which blocked President Trump’s first two executive orders on immigration from certain majority-Muslim countries, would be unable to block the statutory rollback. The judiciary would not enforce laws that no longer appear on the books, and nothing about a Dodd-Frank repeal (returning to a pre-2010 status quo) is obviously unconstitutional.

But a “clean repeal,” or even piecemeal “repeal and replace,” would be politically difficult. It would most likely require 60 votes in the Senate, where the Republicans have only 52. There would be a fair bit of lobbying against it because banks and financial institutions would need an army of legal advisers to figure out how the law changed. 

Repeal and replace Dodd-Frank would face the same central question as the repeal and replace effort for the Affordable Care Act: What will replace it? While a few rules seem mostly unpopular, there is little consensus on what the right rules should be.

Second, President Trump could issue executive orders aimed at hollowing out certain regulations. He cannot change the law itself by an executive order, which is why executive orders typically state that they apply “to the maximum extent consistent with law.”  But he can issue executive orders that regulators should roll back certain rules, or decline to enforce others.

Such orders would almost necessarily be case-by-case and very slow. Repealing a regulation typically takes a similar process as passing it in the first place — a proposal, a public comment period, examination of impacts and then a decision by the SEC or other relevant regulatory body on whether or not to repeal the rule.

Several Dodd-Frank rules first proposed in 2010 were still in the enactment process when President Obama left office in January 2017. By the time a rule-repeal process started to have real effect, the 2018 elections will have come and gone.

Third, the president could quietly direct his agency heads to undo regulations, or simply not enforce existing regulations, or the agency heads could reach that conclusion on their own. This more subtle avenue seems the most likely way that the Trump administration could enact real Dodd-Frank regulatory reform without blowback from industry or the public.

But this avenue is less likely, because it requires a fair bit of subtlety: Regulations would be slow to change, their change would be less immediately apparent, and it would be more difficult for the administration to claim credit for the changes. If it did, it would risk running afoul of judicial claims by any aggrieved parties that the administration was not taking care to enforce the law as duly enacted by Congress.

All of these possibilities pose significant challenges for the administration. Because of the difficulties presented by any of these paths, it is fairly likely that the major “haircut” that the administration promises for Dodd-Frank could turn out to be more of a trim. 

Y. David Scharf is an appellate attorney and litigator at Morrison Cohen LLP in New York, representing clients in securities and commercial litigation matters. 


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