Uncertain Future for Dodd-Frank
Last week, President Trump ordered a review of major banking regulations put in place following the 2008 financial crisis, largely comprising Dodd-Frank regulations. President Trump has made clear that rollbacks are a main objective for these reviews.
Though the executive order only calls for a review, the Trump administration aims to make major cuts to banking regulations, largely affecting Dodd-Frank’s enforcement measures: Volcker Rule and the Consumer Financial Protection Bureau (CFPB).
Here is an overview of the two main components of the Dodd-Frank banking regulations and what it means if they are cut:
The Volcker Rule
A big part of Dodd-Frank, the Volcker Rule raises capital requirements for banks and limits trading abilities. Banks are restricted from certain investment activities using their own accounts and also from retaining control over covered funds.
The Volcker Rule acts to prevent speculative trading. If cut, big banks could be free to make unstable investment decisions.
Consumer Financial Protection Bureau
Another major component of Dodd-Frank, the CFPB was established by congress as a means of hands-on banking regulation and enforcement.
The CFPB acts to protect consumers from aggressive and predatory investment banking and trading practices. In addition to taking legal action against unfair and deceptive practices, the CFPB also serves as an educational resources for consumers and investors.
If cut, banking regulation could once again become largely decentralized and unable to accurately oversee banking practices.
Effects
Bankers and lenders laud President Trump’s decision to review current financial regulation under Dodd-Frank. Wall Street saw a noticeable bump in banking stock prices following Friday’s announcement.
Despite lender and broker-dealer optimism, many consumers and regulators worry that loosened regulations will lead to a financial relapse and market crash.