Trump’s Financial Agenda: Some Short-Term Signals to Watch

By Chris Bruce

Nov. 22 — Bank lawyers and analysts are looking for early signals on an expected push by the Trump administration to redraw the regulatory landscape for financial services.

The most explicit signs so far suggest a headlong clash in some areas, such as potential changes to the Dodd-Frank Act. Although the Trump-Pence transition team’s website says its financial services team will be working to “dismantle” the Dodd-Frank Act, incoming Senate Minority Leader Charles Schumer (D-N.Y.) says he has the votes to block a repeal of the 2010 law.

Other signs may come not from the transition team or the new administration, but from political rivals. Eric Mogilnicki, a partner with Covington & Burling in Washington, said he’s looking for indications of Sen. Elizabeth Warren’s (D-Mass.) influence.

“I would watch the extent to which other senators support Sen. Elizabeth Warren’s efforts on Trump administration nominees,” Mogilnicki said Nov. 21 “Those hearings and votes will serve as an early test of whether the Democrats in the Senate are going to be united in opposition to the administration.”

Fed Vice-Chair Appointment?

Appointments will send clear messages, including one that’s been on the shelf for years—a vice chair for supervision at the Federal Reserve. That post, created by Dodd-Frank but never filled, has been functionally handled by Fed Governor Daniel Tarullo.

Any move to fill the slot would send a loud and clear message that Dodd-Frank rules are open to question, according to Ed Mills, a financial institutions analyst with FBR & Co.

“If they appoint someone, there’s no longer a Senate filibuster of those appointments, so you are in effect nominating Tarullo’s boss or his replacement,” he told Bloomberg BNA. “That would be a change that would fundamentally alter the direction of final rulemaking related to Dodd-Frank.”

Authoritative Voices?

Appointments of all kinds will be watched, and not just big-ticket decisions such as who will head the Treasury Department. In the early period of the new administration, even lower-tier appointees may play critical roles if they are able to speak with an authoritative voice on what will happen and how.

In some reform cycles, that’s a task that’s been handed to the Treasury Department’s assistant secretary for financial institutions. But it’s not yet clear who will have that kind of voice as the new administration takes shape. “What I want to know is, who’s driving the bus?” said one industry observer who asked not to be named.

Among other signs, Mills said he is watching Republicans in Congress, saying they may play a larger role than previous congresses. According to Mills, Donald Trump hasn’t personally articulated detailed policy positions as much as have some presidential candidates in the past. That means the agenda could be spelled out in important measure by others.

“We are going to see the turning over of the pen, especially in the early days, to those who already have well-articulated policy positions,” Mills told Bloomberg BNA. “The Republican Congress will have that pen.”

Boosting Energy, Infrastructure

Regulation in general will be a major focus of the new administration, probably right away. In a Nov. 21 video updating the transition team’s efforts, President-Elect Trump said he will “formulate a rule” directing that any new regulation must be accompanied by the elimination of two old rules.

But financial regulatory reform, in itself, may not be a top priority of the Trump administration.

Even so, financial regulatory reform is likely to get plenty of attention as a way to speed investment in other priorities such as energy and infrastructure, said Margaret E. Tahyar, a partner in New York with Davis Polk’s financial institutions group.

“The new Republican coalition needs to deliver economic growth and jobs in the heartland, and that means freeing up the banking sector to make investments in infrastructure, energy, and small and medium-sized businesses,” Tahyar said.

CFPB Litmus Tests

Many are keeping an eye on the Consumer Financial Protection Bureau, which has asked a federal appeals court in Washington to rehear an October ruling that said the CFPB’s single-director leadership structure violates the U.S. Constitution. Under the terms of Dodd-Frank, Cordray’s five-year term is set to expire July 15, 2018. But if the October ruling stands, Trump, as president, could remove CFPB Director Richard Cordray at any time.

Among other implications, the CFPB could accelerate enforcement cases already in the pipeline, Mogilnicki said. “To the extent the Bureau has big enforcement cases close to finalized, they might decide to expedite them before there is additional uncertainty about the Bureau’s leadership and direction,” he told Bloomberg BNA Nov. 21.

Mogilnicki said its possible that Trump might fire Cordray on his first day in office. Any such move would immediately complicate the CFPB’s mission, while sending a message about the tone of actions by the new administration, Mogilnicki said.

“Does he try to fire Director Cordray on Day One?” he said. “That would be a pretty big tell on the new administration’s intentions towards the Bureau.”

DOL Fiduciary Rule

On the regulatory side, Mills also said he’s keeping an eye on the fate of the Labor Department’s fiduciary rule. Expectations are that the Trump administration will seek to delay implementation of the rule and seek a new round of comments, he said.

“If that happens, that will be an indication that everything in financial services policy is in play,” Mills said.

But some measure of change isn’t unexpected given the overall state of things seven or so years after the “paradigm shift” under Dodd-Frank, according to Davis Polk’s Margaret Tahyar.

“Many parts of Dodd-Frank strengthened the banking sector, but it’s not surprising that a paradigm shift can go too far,” Tahyar said. “We made a lot of necessary changes, but we made them very fast. A recalibration or reorientation is actually not radical in that context.”

The Trump-Pence transition team did not respond to a request for comment.

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