regulation-6-7-17.pngEditor’s note: The House passed the CHOICE Act Thursday 233-186 but it isn’t expected to earn enough votes in the Senate to become law.

Financial regulatory reform is a priority for President Donald Trump and his administration, which views burdensome and costly regulation as a significant impediment to lending and economic growth. However, more than 100 days into the Trump presidency, neither the president nor Congress has taken meaningful action on financial regulatory reform. While it is impossible to predict what the administration’s legacy will ultimately be on regulatory reform, its actions thus far with respect to regulation generally, proposals introduced in Congress by Republicans, and the president’s power to appoint agency officials may offer some clues of what’s to come.

Financial CHOICE Act
The Financial CHOICE Act, which House Financial Services Committee Chairman Jeb Hensarling, R-Texas, has called a blueprint for financial regulatory reform, passed the House Financial Services Committee on a party line vote on May 4. The current version of the CHOICE Act would, among other things:

  • Transform the Consumer Financial Protection Bureau (CFPB) from an independent agency to an executive agency, subject to Congressional oversight and the Congressional appropriations process, with its director removable at will by the president.
  • Make the CFPB an enforcement agency without a bank supervisory function.
  • Eliminate the CFPB’s authority to enforce unfair, deceptive or abusive acts and practices.
  • Provide regulatory relief to community banks and those engaged in residential mortgage lending.
  • Repeal the Volcker rule, which prohibits banks from proprietary trading.
  • Provide regulatory relief for banks that maintain a 10 percent leverage ratio.
  • Overturn the U.S. Second Circuit Court of Appeals’ decision in Madden v. Midland Funding.

While the CHOICE Act is likely to pass the House in some form, its chances of passage are remote in the Senate since 60 votes are required to overcome a filibuster. Nevertheless, some targeted reforms, including regulatory relief for community-based institutions, could be enacted.

Executive Orders
With material changes to the Dodd-Frank Act likely to die in the Senate, President Trump’s executive orders may form the basis of the administration’s regulatory reform strategy. President Trump has signed six executive orders impacting the financial services industry. Among other things, these executive orders:

  • direct the Treasury secretary to consult with the nine member agencies of the Financial Stability Oversight Committee and draft a report to the president analyzing current laws and regulations for their consistency with the seven so-called core principles of financial regulation;
  • require each agency to repeal two regulations for each new regulation implemented;
  • require a cost/benefit analysis before new regulations are adopted; and
  • require agencies to establish regulatory reform task forces and appoint regulatory reform officers whose job will be to identify burdensome regulations and evaluate their consistency with the core principles.

However, executive orders can accomplish only so much. Just as President Obama could not unilaterally repeal legislation, President Trump will not be able to roll back statutory provisions of Dodd-Frank without acts of Congress. Further, while it may be possible to soften the impact of certain Dodd-Frank regulations, the Administrative Procedures Act generally requires that any regulations implemented through a notice and comment process go through a similar process before they can be repealed.

President Trump’s broadest impact on financial regulatory policy may come from his appointments to federal agencies. Treasury Secretary Steven Mnuchin has been confirmed. Three vacancies currently exist on the seven-member Federal Reserve Board of Governors. Former Treasury Undersecretary Randy Quarles is expected to be appointed as the first vice-chair of supervision, filling one of these vacancies. When the terms of Chair Janet Yellen and Vice-Chair Stanley Fischer expire in February 2018, the president will have the opportunity to reshape the central bank. Likewise, the comptroller of the currency has been replaced on an acting basis by banking attorney Keith Noreika and may be replaced by former One West CEO Joseph Otting on a permanent basis. If CFPB Director Richard Cordray is removed or leaves of his own accord later this year to run for Governor of Ohio, as many suspect he may, the president would have the ability to appoint a new CFPB director. Further, there is currently a vacancy on the Federal Deposit Insurance Corp. board and current chair Martin Gruenberg’s term as director will end in November. Since the comptroller of the currency and the director of the CFPB also sit on the FDIC’s board, the president soon will have an opportunity to appoint four of the FDIC board’s five members.

While the president can’t order officials at these agencies to take particular actions, and his ability to remove agency officials may be limited, his appointees will likely exercise a more restrained approach to regulation than Obama-era appointees. Over time, we expect a tangible difference in how banking agencies approach supervision and enforcement. At the end of the day, the president’s appointment power may be the most effective tool in his tool box.


Matthew Dyckman


William Stern