On February 3, 2017, the Trump administration issued an executive order signaling the intent to make good on the campaign promise to unwind the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
The order itself doesn’t repeal (do away with) the Dodd-Frank Act—it can’t. To change existing law, Congress must agree to take action.
Instead, the order directs the Financial Stability Oversight Council (FSOC) to determine whether existing finance laws meet the economic goals of the Trump administration. The goals stated in the order include:
The stated goals largely mirror those of the Dodd-Frank Act itself. Specifically, the Act came about after the 2008 recession. Its purpose was (and is) to protect taxpayers from the financial drain of funding another banking bailout, as well as to protect individuals against unfair financial practices.
Eliminating the Dodd-Frank Act would effectively reinstate a pre-2008 economic climate. By all accounts, the state of the law during that period allowed for the 2008 recession. (For more details, read What Is the Dodd-Frank Act?)
What remains unexplained is why reverting to a legal structure that caused widespread financial distress would be beneficial to vulnerable consumers. Also unclear is how the loss of protections under the Act—such as laws that help homeowners save homes by slowing the foreclosure process—will be valuable to the average citizen. (Learn more about these and other protections by reading What Is the Consumer Financial Protection Bureau?)
If the Trump administration is unaware of the importance of the Dodd-Frank Act, the FSOC’s review should help. For instance, it will likely explain that current credit limitations protect citizens from another government banking bailout. The Act requires financial institutions to retain sufficient capital to ensure enough liquidity to weather a market downturn. Freeing up credit by allowing banks to lend a higher percentage of funds could precipitate another cycle of risky lending practices and failed banks.
It’s likely that the FSOC’s report will make clear that the Dodd-Frank Act must remain in place or be replaced with more effective protections. Otherwise, taxpayers will again be vulnerable to losing—not increasing—wealth due to:
As of this writing (February 13, 2017), the Dodd-Frank Act continues to shield taxpayers from the economic burden of an unstable, overly-extended banking system.