The US Securities and Exchange Commission’s (SEC) Rick Fleming has come out in defence of the embattled Dodd-Frank Act following President-Elect Donald Trump’s repeated threats to repeal and replace it.
Speaking at the University of Maryland Robert H Smith School of Business Center for Financial Policy, Fleming, an SEC investor advocate, affirmed: “The protection of investors must serve as the first principle guiding our financial regulations. We should think of those regulations not as a burden to be repealed or picked apart haphazardly, but as the essential nutrient for flourishing capital markets for a growing economy.”
Turning to Dodd-Frank’s impact on the derivatives market, Fleming said: “For the first time, these regulations will allow regulators to monitor and oversee the market. And for the first time, the public will be able to see trade and price information about security-based swap transactions.”
“In place of opacity, we will now have visibility. In place of a tangled skein of blind spots that led to financial panic, we now have an established framework of transparency and regulatory oversight over an $11 trillion market.”
Fleming did concede: “I think it is legitimate to question, six years after its adoption, whether the other pieces of the act have done more harm than good.”
Since his victory in the US election, Trump’s transition website greatagain.gov lists repealing Dodd-Frank as one of his primary objectives.
It describes the act as “a sprawling and complex piece of legislation that has unleashed hundreds of new rules and several new bureaucratic agencies. The proponents of Dodd-Frank promised that it would lift our economy. Yet now, six years later, the American people remain stuck in the slowest, weakest, most tepid recovery since the Great Depression.”
A replacement for Dodd-Frank has already been proposed by Texan Republican representative Jeb Hensarling, who chairs the House’s financial services committee.
His bill—the Financial CHOICE Act—would hand the reins back to Wall Street on the premise of a do-or-die offer that would see a three-fold hike in multiple penalty categories and a promise of no further bailouts exchanged for much greater freedom to lend and do business with one another.
The proposed bill would see a long list of Dodd-Frank’s rules repealed or drastically reformed with the main aim being to simplify the legal framework banks must adhere to.
Fleming, in justification of the scale of Dodd-Frank during his speech, stated: “Given the depth of the financial crisis, it took a massive response by our government to keep it from turning into a new Great Depression. And it is not surprising that it resulted in a hefty piece of legislation–the Dodd-Frank Wall Street Reform and Consumer Protection Act–which covered a vast array of topics in its 540 sections”.
Separately, ratings agency S&P Global Ratings, which is also directly controlled by the provisions of Dodd-Frank, highlighted the important point that “larger deregulation, most notably an overhaul of Dodd-Frank, would be more difficult and require congressional approval,” it explained in a recent statement.
The nature of Trump’s commanding victory means that the Republican Party retained control of all three houses, including the Senate, meaning that such a barrier would not be insurmountable for the soon-to-be president. Several Republican senators have already stated they would endorse any such motion.
Brendan Brown, credit analyst at S&P Global Ratings, added: "Deregulation could support the earnings of financial institutions but would be a credit negative if it weakens capital or liquidity standards or resolution planning."
Speaking pragmatically in his closing remarks, Fleming concluded: “I submit, we need strong and effective regulations—not to stifle financial markets and our economy, but to give them the framework to thrive. And to replace anger with trust, confidence, and hope for the future.”
“We just came through a difficult and divisive election, and elections have policy consequences. This is as it should be. But it is my hope that the new crop of policymakers will simply remember the people who put them here.”
“They include people from my rural home county, where 76 percent of the voters cast their ballots for President-Elect Trump.”
