Just when Wall Street was starting to wonder whether President Donald Trump really would be good for business, the new administration is delivering on Wall Street’s wish list.
Trump will sign an executive order Friday designed to roll back the regulatory system put in place to prevent another financial crisis, a White House official said. Among the targets are rules that protect against predatory lenders, force brokers to lower fees for retirees and ban proprietary trading.
Chief executives including Goldman Sachs Group Inc.’s Lloyd Blankfein and JPMorgan Chase & Co.’s Jamie Dimon have been pushing those kinds of changes for years, arguing that the industry has been too constrained by the system put in place by the 2010 Dodd-Frank Act. After Trump focused on limiting trade and immigration during his first two weeks in office -- policies opposed by many in the financial industry -- the president’s stroke of a pen unleashes a process to undo many of the rules they find most irksome.
“We’re going to attack all aspects of Dodd-Frank,” Gary Cohn, director of the White House National Economic Council, said Friday in an interview with Bloomberg Television. “We are going to engage the House, we’re going to engage the Senate. They are equally interested in reforming some of the regulatory processes as well. We can do quite a bit without them, but the more help we get from Congress the better off we’re all going to be.”
U.S. equity markets, which had dropped earlier in the week amid the immigration controversy, climbed toward recent record highs Friday, with financial stocks leading the way. The 63-company S&P 500 Financials Index advanced 1.7 percent at 10:54 a.m. in New York. Goldman Sachs and Morgan Stanley each surged more than 4 percent.
Cohn, until recently the No. 2 executive at Goldman Sachs, and Steven Mnuchin, the former banker Trump nominated for Treasury Secretary, are advising the president on the rule changes. Before signing the executive order, Trump plans to meet with Dimon and the other members of his economic advisory panel, led by Blackstone Group LP CEO Steve Schwarzman.
Dimon and other CEOs have complained that the rules tie up resources that could otherwise be used to boost lending and help stimulate the economy.
“Every place a bank needs to hold capital and they need to retain capital prohibits them from lending,” Cohn said in the interview.
The restrictions haven’t prevented a jump in new lending. U.S. commercial banks had $9.19 trillion in loans and leases outstanding at the end of last year, according to data compiled by Bloomberg from Federal Reserve statistics. That’s a $558 billion increase, or 6.5 percent, over 2015, the data show. Of that, $2.1 trillion are business loans, a 7.3 percent advance from the prior year.
Lending to small businesses and farms fell for several years after the 2008 crisis, but has grown consistently by a quarterly average of 2 percent since 2013, according to data from the Federal Deposit Insurance Corp.
At JPMorgan, the biggest U.S. bank, loans increased 10 percent to $806.2 billion last year, with gains in every category including credit cards and wholesale debt.
On Monday, Trump promised to do “a big number” on the Dodd-Frank Act during a meeting with small-business owners. He said the law had damaged the country’s entrepreneurial spirit and limited access to needed credit, calling it a “disaster.”
One focus will be the Volcker Rule limits on banks making speculative bets with their own funds, Cohn said. Trump is also expected to sign an order to stall the fiduciary rule -- set to take effect in April -- that the Obama administration said would protect millions of retirees from being steered into inappropriate investments that generate bigger profits for brokers.
“There’s so much in Dodd-Frank that just doesn’t make sense,” said Robert Albertson, a principal and chief strategist at Sandler O’Neill & Partners LP. “The dialogue between the financials and regulators had to change.”
The president signaled that he wants a change of direction at the Consumer Financial Protection Bureau. Cohn told the Wall Street Journal that one way to do that would be to replace its director, Richard Cordray. That could trigger a legal battle if Cordray refuses to step down.
Likely Opposition
Trump’s deregulation plans will be opposed by Democrats such as Senator Elizabeth Warren, who’s championed the consumer-protection bureau and the stricter bank rules. She’s said Trump plans to use his power to benefit wealthy friends.
“This is what happens when fox meets hen house,” Neil Barofsky, the former special inspector general of the Troubled Asset Relief Program and a partner at Jenner & Block, said on Twitter about Trump’s plan.
The changes have nothing to do with Goldman Sachs or any other particular firm, Cohn said in the Wall Street Journal interview. They’re intended to help the U.S. remain the dominant financial center, he said.
Trump’s orders are likely “symbolic” because there’s little he can do directly to alter Dodd-Frank, the Department of Labor’s fiduciary rule or the fate of the CFPB, Cowen & Co.’s Jaret Seiberg said in a note Friday. The real change may occur once Trump has named his people to government agencies, the analyst wrote.“The president over the next 12 months gets to put his people in charge of the financial regulators,” Seiberg wrote. “That will then open the door to ease regulatory burden.”
Indeed, Cohn said that there is much the White House will be able to do to effect regulatory change without Congress, although the administration plans to work with Congress to address changes to Dodd-Frank.
For some in the industry, the changes may be coming too late.
“Many firms in these sectors have already taken steps and adjusted fees to restructure their businesses to comply,” Brian Gardner, an analyst at Keefe, Bruyette and Woods, said in a note to clients about the fiduciary rule. “We are skeptical whether many of them will reverse course simply because such a reversal may look like the firm is putting its interests ahead of its customers.”
This article was provided by Bloomberg News.