Interviews

"I’m not going to anticipate an impact from the Trump administration, as they are incoherent"

By Tanya Angerer

Barney Frank, an ex-congressman of the United States, key architect and part-namesake of the Dodd-Frank Act, speaks to The Asian Banker about US President Trump’s attempts to change the bill, which he described as a “disaster”. In February, Trump signed an executive order to review the mammoth regulatory system put in place after the 2008 financial crisis with the US Treasury Secretary expected to report his findings in June.

  • Frank believes there is no chance that President Trump would get 60 votes through the US Congress to change Dodd-Frank Act
  • "Trump says he wants to 'revive the Glass Steagall Act, yet they also want to repeal the Volcker Rule,' so the policies seem contradictory," said Frank
  • "The problem is not when a bank is too big – I don’t think too big is the issue. The problem is when they are too indebted, when a financial institution is allowed by a laxity of regulation to incur debts beyond what it can pay," he added

The Asian Banker (TAB): President Trump has signed a multitude of executive orders since he came to power, but how significant are they?

Barney Frank (BF): Executive orders, with regards to financial reforms are simply statements, with no force or affect. They are just rhetoric. You cannot, by executive order, change the law written by the US Congress. Some of the most publicised executive orders are just Trump telling his staff to study this and are simply saying to his own people – how do I change things?

TAB: So what sort of reforms has Trump been able to do so far?

BF: The US Financial Stability Oversight Council (created under the Dodd-Frank Act) looks at large financial entities and decides whether they need extra supervision. It’s automatic for a large bank or a financial firm, but the question is does it apply to other companies, for example, insurance companies? Trump has basically obstructed them to add any new ones to the list. So it doesn’t undo the law, but it’s one of the cases where he said you have power – don’t use it.

TAB: How likely do you think it is that there will be an overhaul of the Dodd-Frank Act?

BF: Trump would need to go through congress and there is no chance that he would get 60 votes through the US Senate – which is what you need to change a bill like this. I have spoken to Democrats in the senate and I don’t know anyone who would vote for a major weakening of the bill. They would need eight Democrat votes, or maybe even nine, because at least one of the 52 Republican senators, Susan Collins from Maine, voted for the Dodd-Frank Act.

TAB: Which parts of the act do you expect to see impacted?

BF: I’m not going to anticipate an impact from the Trump administration, as they are incoherent. Trump announced the other day that he wanted to revive the Glass Steagall Act, which separates banking and investment. Yet, they also want to repeal the Volcker Rule, which prevents banks from proprietary trading, so the policies seem contradictory.

The other one I do know is that they hate the US Consumer Financial Protection Bureau. What they want to do is scrap it, but it’s too popular. Instead, they are trying to weaken its protection from the annual congressional appropriation process and make it easier to fire its director.

TAB: Which parts of the act would you change on hindsight?

BF: I would exempt the banks with under $10 billion in assets from some of the rules, like the Volcker Rule. The other area, I’m leaning towards is that banks under $10 billion in assets should be able to lend to whomever they want if they agree to hold these loans on their portfolios rather than securitise it. The smaller banks generally know whom they are lending to, more than a JPMorgan or a Wells Fargo do, so there could be merit in this. Finally, I do believe $50 billion was a bit low to be deemed as a systemically important financial institution (SIFI), we should push it up to $110 billion or even $125 billion. Having said that, I am now a director of a bank that would be affected by that. But fortunately for me, I said that in 2013 before I even heard of Signature Bank at New York.

TAB: What’s the danger of the Trump administration if you don’t expect Dodd-Frank to be grossly modified?

BF: That it will be administered too loosely. That they will not use the powers they have and allow abusive practices to build up. The problem is not when a bank is too big – I don’t think too big is the issue. The problem is when they are too indebted, when a financial institution is allowed by a laxity of regulation to incur debts beyond what it can pay. And that’s at a level where it can actually damage the whole system, as we saw in Lehman and American International Group (AIG).

Categories: Financial Institutions, Regulation, Risk and Regulation, Transaction Banking
Keywords: Dodd-Frank, US CFPB, FSOC, OLA, Choice Act
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