Trump and the Financial Institutions

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Donald Trump’s Transition Team: We Will ‘Dismantle’ Dodd-Frank

The Wall Street Journal  /  November 10, 2016

GOP eager to make litany of changes that until recently stood little chance of avoiding President Barack Obama’s veto

President-elect Donald Trump’s transition team promised to dismantle the 2010 Dodd-Frank law, declaring that the coming administration will seek to remake the way the U.S. oversees the financial sector.

Tuesday’s Republican sweep, and Mr. Trump’s commitment to focus on the issue, has the GOP salivating over a wish list of Dodd-Frank changes that until recently stood little chance of avoiding President Barack Obama’s veto pen. The lineup includes everything from regulatory exemptions for community banks and regional banks to a new regime for insurers and asset managers to curbs on the federal government’s influence over consumer-finance products such as mortgages and payday loans.

The brief note on Mr. Trump’s new website was the first time since Tuesday’s election that the president-elect addressed financial regulatory policy. It was consistent with Mr. Trump’s campaign-trail rhetoric, blaming the Obama administration’s signature response to the financial crisis for a tepid economy and promising to “replace it with new policies to encourage economic growth and job creation,” but providing few details.

Another sign that Mr. Trump may make Dodd-Frank overhaul a priority is the news that his transition team is considering as a candidate for Treasury secretary one of the leading critics of Dodd-Frank on Capitol Hill. People familiar with the matter said that in Trump aides’ preliminary discussions about possible candidates to fill that slot, they are looking at Texas Rep. Jeb Hensarling, the chairman of the House Financial Services Committee, who has crafted a deregulatory alternative to the 2010 law.

Mr. Trump’s talk of deregulation has helped fuel a rally in bank stocks this week. After struggling for much of 2016, bank stocks rose sharply Wednesday and Thursday. The KBW Nasdaq Bank index now is up nearly 12% on the year, about double the gain in the S&P 500. European bank stocks also leapt, reflecting hopes the U.S. will no longer aggressively push tougher regulations on global banks.

Banks by and large would welcome a re-examination of the Consumer Financial Protection Bureau and other elements of Dodd-Frank, but they also have much invested in the law, which they point to as evidence that bailouts are a thing of the past. Goldman Sachs Group Inc. CEO Lloyd Blankfein said at a conference sponsored by the New York Times on Thursday that it “could be appropriate to look at” repealing some parts of Dodd-Frank, but he added that he wouldn’t “want to repeal in toto.”

Whether Mr. Trump can keep his vow to upend Dodd-Frank, and how far those changes will reach, depends in large part on what happens in Congress. Financial regulation hasn’t been mentioned by Mr. Trump as something he would thrust on the White House’s agenda during his first 100 days in office and Republicans are tempering expectations. “I don’t think that you’re going to see major efforts to throw out Dodd Frank wholesale,” said a person who has advised the Trump campaign on regulatory policy.

Mr. Hensarling last year laid out a blueprint for replacing Dodd-Frank that many observers view as a starting point. In an interview Thursday, he said the Trump team’s statement “is music to my ears,” and that he planned to make the bill, dubbed the Financial CHOICE Act, his top priority next year.

He said he had spoken with Mr. Trump’s team about the matter in the past, adding: “I think they like the thrust of the legislation and many major components of it.”

As for the prospect of him taking the Treasury slot, the Texas lawmaker said he would “certainly have the discussion” if the Trump administration comes calling, “but I’m not anticipating the telephone call.”

Mr. Hensarling’s bill is built around a trade-off: Banks can free themselves from various regulations, such as tough stress testing, as long as they maintain capital equal to at least 10% of total assets and high ratings from their regulator.

That would immediately help many small locally focused banks that tend to be better capitalized, but not necessarily megabanks with sprawling international operations that generally have capital levels below that level.

In the interview, Mr. Hensarling said he would try to convince Mr. Trump’s team to support his approach instead of their campaign-trail promise to reinstate the Depression-era Glass-Steagall law separating traditional lending from investment banking.

Mr. Hensarling’s bill also would make other significant changes, such as requiring that many financial regulations be subject to cost-benefit analysis for the first time and tying the budgets of regulatory agencies, including the CFPB, to congressional appropriations.

The CFPB has enjoyed a high level of independence by getting its funds from revenues insulated from the legislative process.

It is possible Senate Democrats could seek to block GOP efforts they view as overreach, but lobbyists and congressional aides are optimistic that some moderate Democrats up for re-election in 2018 in states that voted for Mr. Trump will be inclined to compromise. Republicans also may come under pressure to change the Senate rules to ease passage of controversial legislation, but it is far from clear they would make that move.

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SEC Chairman White to Leave Agency, Opening Door to Conservative Shift

The Wall Street Journal  /  November 14, 2016

Securities and Exchange Commission (SEC) Chairman Mary Jo White (age 69 in December) plans to step down in January, opening the door to a new Republican-appointed leader who could move to loosen rules on Wall Street and curb the aggressive enforcement approach Ms. White prosecuted.

The change in command portends a significant shift at the SEC, which has for six years focused on tightening rules required by the 2010 Dodd-Frank Act, a regulatory overhaul championed by Democrats.

A Republican SEC chairman, appointed by President-elect Donald Trump, also could pull back on a host of rules that Ms. White conceived, including curbs on mutual funds’ use of derivatives, and stricter controls on algorithmic traders and off-exchange venues known as dark pools.

Ms. White’s departure also creates uncertainty in the short run because the SEC would have to operate with just two of the five commissioner seats filled after she leaves. Gridlock could ensue because one commissioner would have an effective veto on any regulatory decision or enforcement action.

During Ms. White’s tenure, which began in April 2013, the SEC overhauled the regulation of money-market mutual funds, credit-rating firms, stock exchanges, and electronic trading venues. She frequently navigated political infighting at the SEC to complete Dodd-Frank requirements, and such friction could continue under a Republican chairman.

The SEC is normally governed by five commissioners, including three from the president’s party and two from the other. President Barack Obama nominated two candidates to fill the existing vacancies more than a year ago, but the gridlocked Senate hasn’t confirmed them. Republican Commissioner Michael Piwowar is likely to lead the agency as acting chairman after Ms. White exits, although Mr. Trump could nominate someone else as Ms. White’s permanent successor.

The SEC also pursued record numbers of enforcement cases during Ms. White’s term, including claims against private-equity firms such as Blackstone Group LP and Apollo Global Management. Her handpicked priorities included the policing of financial-reporting fraud and punishing even the smallest violations on the theory that it would deter a culture of misconduct.

Mr. Trump hasn’t yet signaled his choices to fill SEC vacancies. But his aides have tapped Paul Atkins, a conservative former SEC commissioner, to handle issues related to the transition for the SEC and other financial regulatory agencies.

The change in leadership at the SEC is just one of many ways financial regulation is expected to change course sharply—through personnel and policy—during Mr. Trump’s presidency. His transition team on Nov. 10 issued a statement saying it was crafting a plan to “dismantle the Dodd-Frank Act.”