In the first 100 days of the Trump presidency, has financial risk increased, decreased, or stayed the same?
“One of the key platforms of the Trump administration was a promise to dismantle the Dodd-Frank Act,” said Candice Nonas, managing consultant at Resources Global Professionals. “What will be the impact of repeal on consumer protection?” She was one of two presenters during the one-hour webinar sponsored by the Global Association of Risk Professionals on April 27, 2017, which is the 100th day since Donald Trump became U.S. president.
Nonas noted that the Dodd-Frank Act is actually an amalgam of several pieces of legislation, some of which are old and some of which are new, like Title X. “Regulations are like oatmeal,” she said, “because we don’t think of them as being particularly volatile.” However, there are world events such as Brexit and the 2017 presidential election in France that contribute to regulatory volatility. The slogan “Putting America First” doesn’t mean that we can work cross-border with our G20 counterparts, she said.
Nonas described some key differences of the current U.S. administration compared to previous ones. The advisors and cabinet appointees are “successful business people,” she noted, but because they do not have a track record of public votes or rulings (such as judges or long-term politicians), “it is not well understood where they stand on certain issues.”
As well, the current administration has a very different style of communication. “For example, tweeting is rapid-fire… people respond on an emotive level,” and the tweets can come at off-hours.
Although the House and Senate belong to the same party, they do not see eye-to-eye on everything. For example, the changes to the health care act did not proceed as intended.
Like it or not, the U.S. is still a major player in the global financial system. “Janet Yellen [Chair of the Federal Reserve] was admonished for going to ‘secretive’ meetings—although it was entirely open,” Nonas said, referring to recent discussions with the Bank for International Settlements (BIS). At the annual Davos conference, the major participants indicated they are not in favour of dismantling Dodd-Frank, because it has brought some helpful discipline into the banking sector. “Some banks are still too big to let fail,” Nonas said.
Another outcome of Dodd-Frank is that “we have seen resolution planning evolve.” In other words, banks are thinking about what to do in case of insolvency. For example, the Comprehensive Capital Analysis and Review (CCAR) test has both quantitative and qualifying hurdles.
The new U.S. administration is drafting the Financial Choice Act. “I see some sacrifices being offered so that we can get agreement on it,” Nonas predicted. Interconnectivity will be key. Does the public really want less accountability and lower capital ratios?
There are four main types of alleged “nails in the coffin” of the Dodd-Frank Act: a regulatory freeze; some 2-for-1 regulations; some core principles that have been stated in executive orders; and steps toward enforcing regulatory reform. But remember independent agencies like the FED, FDIC and OCC don’t have to follow executive orders.
The regulatory freeze is similar to what then-White House Chief of Staff Rahm Emmanuel carried out at the start of the Obama administration, Nonas remarked. “Every new administration wants to go slow on issuing regulations and hiring new people as they begin to assert their new prerogative,” she said.
As far as changes to core principles, we should expect to see “the SIFI designation will be contested a lot,“ she said, referring to systemically important financial institutions. The regulators will have to come up with consensus for the definition and how to make the determination process more efficient.
The Dodd-Frank Act was designed in the wake of the financial crisis of 2007-2008. A cornerstone intended to protect American citizens from abuse by financial institutions is establishment of the Consumer Financial Protection Bureau (CFPB). The future direction of this body is currently being decided in a court of law.
In closing, Nonas remarked that banks have spent billions of dollars to comply with regulations in the Dodd-Frank Act. Internationally, Dodd-Frank is part of global financial stability. Technology is also helping to increase stability of financial systems. We would do well to protect stability. ª
Click here to view the GARP Webcast- Risk RX: A Check-up on Regulatory Risk During the First 100 days of the new Presidential Administration: http://bit.ly/2mUpSjp