Dodd Frank Repeal Coming?
The U.S. Department of the Treasury issued a 149 page report on Monday consisting of 16,144 words and titled "First Report on Core Principles of Financial Regulation Stimulating Economic Growth, Increasing Access to Capital & Taxpayer Protection Are Top Priorities."
Treasury Secretary, Steven Mnuchin, said "if he was king for a day, he would repeal the Dodd-Frank Act." However, it may be difficult to have a full repeal passed in the senate; according to Mnuchin, 80% of the rules could be done without congress.
The plan is to scale down the Volcker Rule, stress tests and lower leverage ratios meaning banks can lend more assets. James Gorman, The CEO of Morgan Stanley, who wrote an op-ed in the Financial Times yesterday, said he was appreciative of some of the efforts of congress; and added, the stress test process is "complicated and cumbersome." One area he highlighted was that the government currently assumes during a stressed scenario that a bank would continue to pay large dividends and grow assets.
He also mentioned that banks have to ask for the dividend and buyback before the test; This means if a bank asks for a $6 billion dividend but that is $1 billion over its limit the whole plan is rejected. If the regulator said you must keep $30 billion of capital, the bank would know how much its maximum dividend could be in the year.
He stated that the Volcker rule is unclear: "the rule is so complicated it has undermined banks’ ability to provide liquidity to the market, making it more difficult and costly for market participants like pension funds to earn a return on their investments."
President of the Americans Bankers Association, Rob Nichols, said "it is not clear how quickly regulators can act on many of the recommendations in the Treasury's 150-page report." He added, there will be a long review process before new rules can be implemented. Also, many prominent banking positions are held by Obama appointees who may be wary of reformatting the old laws.