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The Presidency, Congressional Republicans, and the Future of Financial Reform

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The Presidency, Congressional Republicans, and the Future of Financial Reform University of Pennsylvania ScholarlyCommons Wharton Public Policy Initiative Issue Briefs Wharton Public Policy Initiative 2-2017 The Presidency, Congressional Republicans, and the Future of Financial Reform Peter Conti-Brown University of Pennsylvania Follow this and additional works at: https://repository.upenn.edu/pennwhartonppi Part of the Business Law, Public Responsibility, and Ethics Commons, Economic Policy Commons, Finance Commons, Public Policy Commons, and the Securities Law Commons Recommended Citation Conti-Brown, Peter, "The Presidency, Congressional Republicans, and the Future of Financial Reform" (2017). Wharton Public Policy Initiative Issue Briefs. 42. https://repository.upenn.edu/pennwhartonppi/42 This paper is posted at ScholarlyCommons. https://repository.upenn.edu/pennwhartonppi/42 For more information, please contact [email protected]. The Presidency, Congressional Republicans, and the Future of Financial Reform Summary This brief examines the tension between the Republican ideological commitment to curbing executive power and the opportunity Republicans now have for Trump to dominate the direction of financial regulatory reform. The discussion will focus on three key policy outcomes that Republicans have sought during the last six years: reforming the Federal Reserve, overhauling the Consumer Financial Protection Bureau, and changing the way in which the nation’s largest financial institutions are designated and regulated. Disciplines Business Law, Public Responsibility, and Ethics | Economic Policy | Finance | Public Policy | Securities Law License This work is licensed under a Creative Commons Attribution-Noncommercial 4.0 License This brief is available at ScholarlyCommons: https://repository.upenn.edu/pennwhartonppi/42 publicpolicy.wharton.upenn.edu The Presidency, Congressional ISSUE BRIEF VOLUME 5 Republicans, and the Future NUMBER 2 of Financial Reform FEBRUARY 2017 Peter Conti-Brown, JD As the curtain falls on the Obama presidency, historians have already begun to put the past Administration into a broader context. While only the Affordable Care Act will be identi- SUMMARY fied by the former President’s name—even Obama has embraced the Obamacare moniker—the Wall Street • When it comes to financial regulation, many have assumed Reform and Consumer Protection Act of 2010, or that the Trump Administration will now work in concert with a Dodd-Frank, will figure prominently in any assess- Republican-controlled Congress to repeal Dodd-Frank in full— a move anticipated in the CHOICE Act, a piece of legislation ment of Obama’s legacy. introduced by Republicans in September 2016. But there are As with its older sibling, how Dodd-Frank is reasons to believe that this will not be so straightforward. assessed will be a partial function of how much of it survives. Since before its enactment in July 2010, • Republicans fashioned the CHOICE Act in anticipation of a Hillary Clinton presidency, with the goal of limiting the execu- Republicans have been circling wagons to amend it, tive’s discretion in response to financial risk. In light of Donald gut it, or repeal it. Now that the party has assumed Trump’s unexpected rise to the Presidency, it is possible that control of both houses of Congress and the White some Republicans may start reevaluating the benefits of limiting House, some skeptics are ready to forecast the disman- executive authority. And recent comments by President Trump’s tling of Dodd-Frank. For support, they point to the pick for Treasury Secretary, Steven Mnuchin, suggest that the Financial CHOICE Act, a piece of legislation intro- Administration favors keeping some aspects of Dodd-Frank. 1 duced by Republicans in September 2016. • This issue brief examines the tension between the Republican Not so fast. While the CHOICE Act would ideological commitment to curbing executive power and the certainly amount to a wholesale repudiation and near opportunity Republicans now have for Trump to dominate the complete repeal of Dodd-Frank’s key provisions, a dif- direction of financial regulatory reform. The discussion will ficult political dynamic is underway that the election focus on three key policy outcomes that Republicans have of Donald Trump complicates, rather than facilitates. sought during the last six years: reforming the Federal Re- At play is both an ideological difference in how the serve, overhauling the Consumer Financial Protection Bureau, and changing the way in which the nation’s largest financial government should approach financial reform, but also institutions are designated and regulated. institutional differences that have more to do with presidential politics than partisan ideology. publicpolicy.wharton.upenn.edu In this Issue Brief, I will discuss THE POLITICAL DYNAMICS The CHOICE Act reflects those those two sometimes conflicting moti- OF FINANCIAL REFORM twin pillars. The surprise election of vations behind Republican reform Donald Trump suggests to many, of the financial sector and focus It is inaccurate to refer to “Dodd- including the CHOICE Act’s spon- especially on three key policy out- Frank” as a single law. It is, in fact, sors in Congress, that this Republican comes that Republicans have sought sixteen different statutes rolled into approach to governance and regula- during the last six years: reforming one. But when Dodd-Frank’s crit- tion will finally get its due. But there the Federal Reserve, overhauling ics point to an overarching zeitgeist, is a problem with this assumption. The the Consumer Financial Protec- it is essentially technocratic: the Act CHOICE Act is a staging ground not tion Bureau, and changing the way puts enormous power in the hands of only for ideological conflict between the largest financial institutions are regulators—whether at the Federal technocratic Democrats and market- regulated. The issues described here Reserve or FDIC, or new agencies like oriented Republicans, but also for are much broader than the CHOICE the Consumer Financial Protection an institutional conflict between the Act, though that proposed legislation Bureau and the Financial Stability executive and Congress. The bill was provides a useful jumping off point Oversight Council—to prevent, man- introduced with the presumption that for discussion. The real questions are age, and resolve abuses of the financial Hillary Clinton would win the presi- about who controls power within the system that can result in crisis. dential election. Much of the language party system: those with ideological The Republican model for reform aimed at limiting the powers of the commitments to specific policy out- is very different. Rather than del- executive can be read through that comes, or those who seek to increase egating to regulators this power, prism. But what does the direction of the institutional power of the Presi- the Republican model would place financial reform under an ostensibly dent. Prior to last November, Republi- more control in the hands of market unified Republican federal govern- can calls for financial reform had been participants themselves and, failing ment look like? And what happens if predicated on a Hillary Clinton presi- that, judges. The defenders of the the new Republican President disap- dency. Now that that has not come to Republican plan for financial reform proves of some of his party’s estab- pass, and Republicans control both would emphasize a light governmental lished views on the 2010 law? the executive and legislative branches, touch and the rule of law. Let market These are the questions for those this Issue Brief reviews a new set of participants allocate risk as makes who would predict a wholesale aban- questions that have arisen as to how most sense to their business model donment of Dodd-Frank. While we the ruling party will pursue its agenda and let them fail when they cannot. cannot be sure of the final shape of with respect to financial regulation. That failure will be resolved by law- a financial reform under a govern- following bankruptcy judges after the ment united by the Republican Party, fact, not fine-tuning central bankers we can be certain that the policy well before. and institutional preferences of the NOTES 1 For a summary of the CHOICE Act’s key features, see banking regulators,” Washington Post, November 11, files/ryan-pelosi-letter-20151116.pdf. http://nascus.org/publications/NASCUSReport/2016/ 2009. 6 See the transcript of the Meeting of the Federal Open CHOICE%20summary.pdf. 4 Victoria McGrane, “Elizabeth Warren and David Vitter Market Committee, November 1-2, 2011 available at 2 Jesse Hamilton, “Mnuchin Puts Pressure on Banks Over Introduce Fed Legislation,” Wall Street Journal, May https://www.federalreserve.gov/monetarypolicy/files/ Volcker Rule, Glass-Steagall,” Bloomberg, January 19, 7, 2015. Warren (D-MA) and Vitter (R-LA) have jointly FOMC20111102meeting.pdf. 2017. criticized the Fed’s lack of transparency and introduced 7 From the opening lines of a speech delivered by Ben 3 Peter Conti-Brown, The Power and Independence of the a bill to distribute authority and responsibility more evenly Bernanke on November 14, 2007: “Montagu Norman, the Federal Reserve, Princeton University Press, 2016; Rand among Fed governors. Governor of the Bank of England from 1921 to 1944, re- Paul and Mark Spitznagel, “The Fed is Crippling America,” 5 For example, see Janet Yellen’s November 16, 2015 letter putedly took as his personal motto, “Never explain, never TIME, January 10, 2016 ; Binyamin Appelbaum and Brady to House Speaker
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