A Dodd-Frank Reality Check

On February 3rd, President Trump gave his Treasury Secretary a 120-day deadline. Hoping to find out which legislation doesn’t comply with a list of core financial principles, the President asked for a review of existing rules and regulations,  Although not mentioned in the document, Dodd-Frank appears to have been the target.

The President’s goals were broad. His order was brief. These are its six guidelines. (I copied the list from whitehouse.gov. He skipped “f”! ):

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Today, I thought we could look back at Dodd-Frank to see what the President’s directive involved.

Dodd-Frank Goals

Two words and four categories can describe Dodd-Frank’s purpose and impact:

Purpose:

1. Risk: Lawmakers wanted to diminish the risks taken by financial institutions.
2. Protection: Lawmakers hoped to protect consumers from making unwise financial decisions.

Impact:

1. Government: More government regulatory authority.
2. Banks: More trading restrictions and capital requirements.
3. Consumers: More protection.
4. Investors: More rules for hedge funds, investment advisors, insurance companies, and those who create securities packages.

Dodd-Frank Rules

Composed of 2,310 pages, the Dodd-Frank Wall Street Reform and Consumer Protection Act describes approximately 398 rule-making requirements. Since July, 2010, regulators have been making those rules.

They have not quite finished.

You can see below that the rulemaking list includes banking regulations, asset backed securities, mortgage reforms and systemic risk:

Dodd-Frank Rulemakers

The Consumer Financial Protection Bureau is concerned with millions of individuals while the Financial Stability Oversight Council looks at our largest financial institutions. But there is much more:

Our Bottom Line: A Legislative Reality Check

That very brief Trump directive targets a very long law. Compared with other financial legislation, it is in a class by itself:

From: Carpe Diem, Mark Perry Blog

Where are we? Those two words, Dodd-Frank, sound so simple. But we are talking about so much more.

My sources and more: As I did, you might like to see the President’s executive order and the Davis Polk report. Davis Polk also has a detailed 138 page summary of the entire act.