Dodd Frank: A Brief Update

This post details the effects of the Trump administration’s likely rollback of the Dodd–Frank Wall Street Reform and Consumer Protection Act.  In this post, I will describe the three major areas of the law that might change. 

Background

The Dodd-Frank act is designed to regulate financial markets through government oversight to prevent the risky and corrupt behavior that led to the 2008 Financial Crisis. However, many within the Trump administration argue that the act restricts growth via complex regulations.

Analysis

According to the author, one of the key parts of President Trump’s agenda is to free banks from certain restrictions that aim to minimize risky investments.

·      Volcker Rule: limits a bank’s ability to invest in private equity and hedge funds
·      Systemically Important Financial Institutions: financial firms worth $50 billion
·      Consumer Protection Bureau: employees report unethical practices within the company to the bureau

These rule makes proprietary trading and volatile stock purchases much more difficult to undertake. The author claims that these parts of the legislation are disliked by many within Wall Street mainly because there is a certain degree of uncertainty with regards to what investments are considered unstable and what constitutes proprietary trading. However, many have credited this part of the act with the relative financial stability of the past seven years.

Another area of potential overhaul deals with the size of the firms being regulated. Under the law, systemically important financial institutions are put under intensive exams conducted by the Federal Reserve to test their financial stability. Furthermore, firms worth $10 billion are placed under greater watch by the government. The author argues that the Trump administration wants to repeal this rule so that lenders would feel less pressure to loan money to small businesses. However, the author stresses that turning a blind eye to systemically important financial institutions could cause another financial collapse.

The article states that Trump’s final push against Dodd-Frank deals with reducing the power of the various consumer protection agencies empowered by the law. Many have applauded this portion of the law as a proper safeguard against corporate scandal and improper management. However, many within the White House want to reduce these agencies’ powers and encourage internal conflict resolution, which will result in a significant decrease in government oversight.

Stakeholders

The key stakeholders identified in this article have opposing interests and policy goals.

·      The Trump Administration: the main proponent for the repeal of Dodd-Frank
·      Large Financial Institutions (Wall Street): many favor the reduction of regulations
·      Regulatory Agencies: oppose Trump’s reform as they will likely be eliminated

Conclusion

Although this article is very thorough, the viewpoints of small business owners and middle class citizens are not fully addressed. Their viewpoints can be accounted for by researching ways in which Dodd-Frank negatively or positively effects the middle class.