Trump’s Dodd-Frank Do-Over Diverted to Slow Lane With Obamacare

  • Republicans have yet to agree on a plan to undo financial law
  • They also don’t have a strategy for replacing health-care law

Trump’s Dodd-Frank Rollback Will Be a Complicated Process

President Donald Trump’s pledge to dismantle the Dodd-Frank financial overhaul is colliding with the same reality as his pledge to gut Obamacare: The Republican majority in Congress can’t decide how to make it happen and Democrats are vowing to fight.

Trump, who last month said Obamacare would be replaced “the same day or the same week,” or perhaps “the same hour,” acknowledged Sunday that the health-care law isn’t going away anytime soon. "We should have something within the year and the following year,” told Fox News’s Bill O’Reilly.

The Dodd-Frank directive he signed Friday is hitting the same road block on Capitol Hill and at federal agencies. 

In both cases, Trump’s team has moved swiftly with a flurry of executive orders that largely promise action in the future. But Republicans in Congress aren’t close yet. On the House side, there’s no agreement on a plan to replace either Obamacare or Dodd-Frank. Even if they reach one soon, it’s almost certain to go beyond what Senate Republicans are likely to accept, and it won’t be able to attract Democratic votes. And putting forward new regulations will take years.

Trump’s executive action on Dodd-Frank has also galvanized Democrats to fight changes to a law enacted in response to the 2008 financial crisis.

“This administration has unleashed a ‘Wall Street First’” agenda, House Minority Leader Nancy Pelosi of California told reporters Monday, calling Trump’s campaigning against Wall Street “a hoax -- just a hoax.”

Trump hasn’t said how long it’ll take to eliminate or water down Dodd-Frank, and even the White House is tacitly acknowledging that change will come slowly, allowing for a 120-day review period in the executive order before making changes.

On Capitol Hill, an ideologically charged House GOP, buoyed by Trump’s election, appears ready to pursue a broad-brush effort to undo the 2010 law, led by House Financial Services Chairman Jeb Hensarling.

The Texas Republican introduced his Financial Choice Act last year, which would eliminate the Volcker Rule’s ban on certain investments, the Financial Stability Oversight Council’s ability to label firms that pose risks to the wider financial system, and regulators’ ability to intervene when banks fail. He’s set to unveil an updated version as soon as this week. The bill never made it to the floor last year, but it’s likely to become the starting point for their efforts this year.

Even if Hensarling gets the bulk of his bill through the House, it won’t receive significant consideration when it reaches the Senate, according to Ed Mills, a financial policy analyst FBR Capital Markets. Hensarling acknowledges the hurdle.

“The House will probably move a little quicker and probably move a little bolder,” Hensarling said in an interview with Bloomberg Television. “At some point, we will go and deal with whatever the Senate work product will be.”

The new Senate Banking chairman, Mike Crapo of Idaho, hasn’t yet outlined his own plan, but the Republican prides himself as a dealmaker and wants to work with Democrats. He said he is collaborating with the administration, House and members on the committee to devise a plan. "I haven’t made a specific timeline yet," he said in an interview before Trump unveiled his directive

Sherrod Brown of Ohio, the top Democrat on the panel, has said he’s eager to work on a bipartisan bill, but not if it entails ripping up core parts of the law that protect consumers. Senators, including Chuck Schumer of New York, the Democratic leader, and Elizabeth Warren of Massachusetts, have also torched Trump’s calls to upend Dodd-Frank.

Senate Republicans would need to woo at least eight Democrats to join them on a bipartisan Dodd-Frank overhaul, but they don’t even have a starting point for any negotiations. Having 10 Senate Democrats facing re-election in states Trump won theoretically gives Republicans a chance for bipartisan action, but making life easier for bankers isn’t high on the to-do list of any of those Democrats. 

A senior Democratic aide said Monday that any bill gutting or repealing Dodd-Frank would unite the party and cast doubt on Trump’s promises to rein in Wall Street.

Anticipating opposition, some Republicans are already talking about going it alone, and trying to shoehorn changes into a budget reconciliation bill that would require just a simple majority to pass.

Even that path is extremely difficult. At least 50 of the 52 Republican senators would need to stick together, while the Senate parliamentarian would also have to agree that any Dodd-Frank changes would have a measurable impact on the federal budget. Republicans could separately try to push smaller tweaks as amendments to must-pass spending bills, but without Democratic support that would risk a government shutdown.

In addition to Democratic opposition, a legislative overhaul isn’t likely to happen soon for another reason: a jam-packed agenda. Between confirming Trump’s nominations, keeping the government running past April 28 and overhauling health care and taxes, there’s not much room on the Senate calendar.

It took a year and a half for a Democratic Congress to pass the original law, as other priorities took precedence.

And the politics of gutting Dodd-Frank might not play well for Republicans as they get closer to the midterm elections in 2018. Many red-state voters live in places that haven’t fully recovered from the collapse of the housing market and 2008 financial crisis, while banking scandals give Democrats fresh ammunition to defend the need for tighter regulations. 

As for what the Trump administration could do on its own, it’ll take months for the Treasury Department to review the law under the executive order. Trump’s Treasury nominee, Steven Mnuchin, is set for a confirmation vote in the Senate as soon as this week. 

It could take years for federal agencies to roll back some of Dodd-Frank’s regulations.

"This process isn’t a short-term, tomorrow issue," said Oliver Ireland, a partner at the law firm Morrison & Foerster. "It’s going to take a long time to work some of these things out."

The president’s point person on the effort is a former Goldman Sachs Groups Inc. partner, Gary Cohn, who is now the White House’s chief economic adviser. Cohn made the rounds on Capitol Hill and on television last week to promote the administration’s plan to ease financial rules more broadly, including for big banks, he said. But he didn’t offer many specifics.

“We’re going to need help from the House, we’re going to need help from the Senate and we’re going to give them help from the White House as well," Cohn told Bloomberg Television.

Republicans’ ability to re-write financial rules is further limited because most of the independent agencies that oversee financial companies, such as the Federal Reserve and Consumer Financial Protection Bureau, still have Obama-era holdovers at the helm. 

Trump also doesn’t yet have a full-time agency chairman in place at the Securities and Exchange Commission, nor has he announced who he’s picked to lead the Commodity Futures Trading Commission. In the meantime, unfilled slots at agencies are giving Democratic officials across the government a bigger say than they would otherwise.

If Republicans hit a wall on pushing unilateral changes to Dodd-Frank, there might be some room for some bipartisan deals. Such an effort would depend in part on Crapo’s ability to woo moderate Democratic lawmakers, particularly those facing tough re-elections next year in states Trump won. That includes Heidi Heitkamp of North Dakota, Joe Manchin of West Virginia, Jon Tester of Montana and Joe Donnelly of Indiana. Virginia Democrat Mark Warner could also be crucial to advancing financial policy changes in the Senate.

But those Democrats aren’t likely to agree to big changes that the Trump administration has proposed, particularly provisions that would help the biggest banks, according to congressional aides.

Some of the most likely areas for bipartisan agreement include easing rules for community banks and credit unions, according to lobbyists and congressional aides. 

"It’s incredibly difficult to be optimistic about any legislation given the political dynamics around Wall Street regulation," said Isaac Boltansky, a financial regulation analyst at Compass Point Research & Trading. "Dodd-Frank is the law of the land. Any changes will be slow and limited."

— With assistance by Billy House, and Benjamin Bain

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