U.S. President Donald Trump’s administration is likely to take a less-confrontational approach to reining in Wall Street than its predecessors when it comes to financial personnel.SAUL LOEB/AFP / Getty Images
U.S. President Donald Trump is taking aim at key changes instituted to avert future financial crises in a signal that his administration hopes to reshape the rules governing Wall Street.
Mr. Trump has already ordered a broad review of the major banking overhaul passed by his predecessor, but on Friday, he directed officials to focus on two elements in particular: the government's emergency authority to seize failing financial institutions and the process used to determine which institutions are subject to the highest level of regulatory scrutiny.
The postcrisis reforms have "done the opposite of what they were supposed to do," said Mr. Trump on Friday. They "encourage risky behaviour."
As Mr. Trump approaches the 100-day mark of his administration – traditionally a benchmark for judging progress – he remains stymied in his efforts to pass legislation in a Republican-controlled Congress. Instead, he has used executive orders and memoranda as a way to demonstrate action, even if the impact of such tools is limited.
That pattern continued on Friday, with Mr. Trump signing an executive order and two memoranda during his first visit to the U.S. Treasury Department. The order instructs officials to scrutinize recent tax regulations to determine whether they are necessary. One such regulation was an effort by the Obama administration to discourage companies from shifting headquarters overseas in order to avoid U.S. taxes, a technique known as a "corporate inversion."
The two memoranda focus on portions of the Dodd-Frank Act, the landmark regulation passed in 2010 aimed at preventing a future financial crisis. In the past, Mr. Trump has made clear he considers the law an unnecessary burden on the financial industry and promised repeatedly to scrap it.
But his chances of fulfilling that pledge appear small. Already this year, Mr. Trump is facing what promises to be a bruising fight over tax reform and is hoping to pass an infrastructure package, putting any banking overhaul lower on the priority list.
And any attempt to make significant changes to Dodd-Frank would face stiff opposition in the Senate, where Democrats could block a bill using a filibuster.
One area where Mr. Trump will have direct impact is in the area of personnel. Regulators enjoy a degree of leeway in implementing the rules and Mr. Trump's nominees to key posts are likely to take a less-confrontational approach to reining in Wall Street than their predecessors.
On Friday, Mr. Trump focused on two parts of Dodd-Frank, a sprawling piece of legislation that runs more than 2,000 pages. He ordered a review of the law's "orderly liquidation authority," which allows the government to seize a failing financial institution in an emergency situation where the existing bankruptcy code is not adequate.
U.S. Treasury Secretary Steve Mnuchin, speaking to reporters earlier on Friday, said that the administration wanted to ensure that the authority didn't encourage "excess risk-taking [and] moral hazard."
Last month, former Federal Reserve chairman Ben Bernanke wrote that while the measure was not perfect, eliminating it would be a "major mistake." Mr. Bernanke noted that critics have described the authority as a bailout in disguise, because it allows a failing firm to borrow money temporarily from the government. But such loans are limited in size and would be repaid by private creditors, Mr. Bernanke wrote.
What's more, the creation of the liquidation authority enjoyed support from members of both parties, said Aaron Klein, an expert on financial regulation at the Brookings Institution in Washington. Friday's memorandum is "a troubling signal that the Trump administration is departing from even the portions of Dodd-Frank with the most bipartisan consensus," he said.
The other directive orders a review of how financial institutions are designated "systemically important," a label that subjects them to a high level of regulatory scrutiny. All major banks receive the designation, but in the past, so too have a handful of insurers and GE Capital. Mr. Mnuchin said the President wants to ensure the process is "fair and transparent."
Friday's moves are "the Trump White House using the bully pulpit to make clear to regulators and legislators that it's interested in these topics and will likely push for specific changes in these areas," wrote Ian Katz of Capital Alpha Partners, a policy-research firm, in a note to clients. But "doing a lot and getting a lot done are not the same thing."
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