How The Trump Administration’s Treasury Executive Order Will Affect The Financial/Banking Industry in 2017

 

In speeches on the campaign trail in 2016, Trump promised to dismantle much of the Dodd-Frank Wall Street Reform and Consumer Protection Act. On February 3, 2017, President Trump signed an executive order directing the Treasury Department to make legislative recommendations for reform within 120 days. The order also delays implementation of the fiduciary rule on April 10, 2017.

The fiduciary rule elevates all wealth management professionals to the status of fiduciaries. Fiduciaries are bound by law to operate in the best interests of each client. Trump’s executive order provides a short reprieve to millions of commissioned brokers and insurance agents who feared that fiduciary status would deprive them of substantial profits and increase their compliance costs. In fact, prior to the president’s executive order, both MetLife Inc. and American International Group Inc. relinquished their broker-dealer units to avoid high compliance costs. MetLife‘s sale to the Massachusetts Mutual Life Insurance Co. included its 4,000 strong Premier Client Group of advisers, while American International sold its AIG Advisor Group to Lightyear Capital and PSP Investments. Before Trump’s executive order, the financial industry was braced for a spate of merger-acquisition deals, which would have reduced the number of advisers serving smaller investors.

In light of the president’s Treasury executive order however, there is strong indication that a complete repeal of the fiduciary rule is forthcoming. A repeal will protect independent broker-dealers and RIAs (Registered Investment Advisers), further reinforcing their market control over small to mid-range 401(K) plan accounts. Additionally, a repeal of major portions of the Dodd-Frank Act will decrease the regulatory burden on smaller banks by limiting the liabilities that are associated with

  • the qualified home mortgage lending rule, which requires banks to reject high-risk mortgage loans.
  • the Basel-III risk-based capital requirements on (CRE) commercial real-estate mortgages, which raises the cost of making CREloans. In addition, there is a 150% risk weight on high-volatility CRE loans.
  • the Durbin Amendment, which lowers the transaction fees merchants must pay to banks and other debit-card issuers. As of 2013, the fee stands at 21 cents per credit or debit-card transaction.

Meanwhile, another key part of the Dodd-Frank provision that appears to be on the chopping block is the Volcker Rule, which prevents larger banks from engaging in proprietary trading or investing in high-risk hedge funds. Banks have long argued that the Volcker Rule is destabilizing during times of economic upheaval, as it negatively affects corporate bond liquidity. Trump’s executive order will also examine the efficacy of maintaining the CPSB’s (Consumer Financial Protection Bureau) database of consumer complaints, long the Achilles heel of the financial/banking industry during the Dodd-Frank era. Although Congress may have trouble passing a complete repeal of the Dodd-Frank Act, there is every indication that the President will direct the SEC (Security Exchange Commission) to halt enforcement of some of its provisions.

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