President Donald Trump signed executive orders Friday that begin the process of rolling back two major Wall Street regulations: the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Department of Labor’s retirement advice rule, also known as the “fiduciary rule.”
The first action orders a thorough review of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010 under the Obama Administration following the housing crisis of 2007. (RELATED: Trump To Repeal Dodd-Frank)
Dodd-Frank was originally intended to increase transparency by implementing a consistent set of regulations aimed at closing loopholes and making firms accountable for their own mistakes. The bill attempted to shift the burden of major financial mistakes from taxpayers to market participants, ensuring those who partake in risky investment practices would bear the financial burden of their mistakes. Dodd-Frank promised to “end too big to fail” and “promote financial stability.”
Despite the Act’s intentions, large banking institutions have grown dramatically since the passage of Dodd-Frank, and small community banks have incurred serious losses. Even more troublesome, crippling regulations saddled smaller banks, forcing American consumers to market with fewer investment vehicles and greater costs. For example, prior to Dodd-Frank, some 75 percent of banks offered free-checking. That figure fell to 39 percent just two years after Dodd-Frank came into effect. Consumers are paying more and getting less because of Dodd-Frank. Low-income consumers suffering the most, according to research by the International Center for Law and Economics.
There appears to be a pervading sentiment in the Trump White House that policies instituted to address the causes of the so-called great recession have largely failed to accomplish that objective. Trump called the regulation a “disaster” recently during a meeting with business leaders. White House National Economic Council Director Gary Cohn said that the current regulations simply hinder banks from doing business, ultimately hurting consumers. Cohn said that many of rules imposed on the financial industry after the financial crisis have not been successful.
The other executive order Trump signed Friday aims at halting the Department of Labor’s “fiduciary rule,” which the Obama administration signed in 2016. The ruling effectively requires brokers to act in their clients’ best interests when they are advising them on retirement or 401k plans. By the Labor Department’s own estimates, the ruling is “the most expensive regulation promulgated by the Obama administration [that year],” senior fellow for the Competitive Enterprise Institute, John Berlau, told The Daily Caller News Foundation. Compliance costs for this rule are expected to be as high as $31 billion over the next decade, according to the Labor Department.
Opponents of the Labor Department rule argue that any new or further regulations should be instituted by an agency that has more expertise, like the Securities and Exchange Commission.
The executive order Friday will surely be met with opposition from Democrats and lobbying groups who believe the post-2008 regulatory reforms are protecting consumers from predatory investment brokers, a narrative challenged by Trump’s performance with voters in the Midwest, where homeowners were hit hardest by the housing crisis.
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