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Trump’s Transition Team Pledges to Dismantle Dodd-Frank Act

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President-elect Donald Trump is translating some of his campaign rhetoric into policy statements, including the contention that the Dodd-Frank Act should be scrapped, Bloomberg reported yesterday. The “big banks got bigger while community financial institutions have disappeared at a rate of one per day, and taxpayers remain on the hook for bailing out financial firms deemed ‘too big to fail,’” says a statement posted on Trump’s official transition website. “The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.” U.S. bank stocks climbed for a second straight day on Thursday as investors bet that a Trump presidency will lead to less regulation and sideline industry critics in Congress. The call to scrap Dodd-Frank isn’t likely to go over well with Sen. Elizabeth Warren, who said that she’d be willing to work with the incoming administration. Warren cited issues they agree on, including the need to curtail Wall Street influence in politics, reinstate Glass-Steagall Act limits on banking activities and reform trade deals. Trump’s website also outlines several policies that will be familiar to those who followed his campaign, including calls for a moratorium on new rules so existing measures can be reviewed.
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Trump Victory Could Prompt Fed to Raise Rates More Quickly

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The Federal Reserve remains on course to raise its benchmark interest rate in December as investors generally reacted with equanimity to the election of Donald Trump as president, The New York Times reported yesterday. Some analysts said Trump’s economic plans could prompt the Fed to keep increasing the rate. The president-elect has promised to stimulate faster economic growth with measures that include a large tax cut and as much as $1 trillion in spending on infrastructure. He has also promised new barriers to imports, which could drive up inflation. Economists appear deeply divided on the impact of such policies. Markets fell sharply overnight Tuesday as it became clear that Trump would win, then bounced back Wednesday morning. By midday, the odds of a December increase as implied by asset prices had stabilized, down to 72 percent from 76 percent. The quick rebound appeared to reflect a first impression among investors that Trump’s partnership with congressional Republicans was likely to lift the economy. But analysts cautioned that the market’s mood could change.
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Trump's Election Could Upend Consumer Protection Bureau

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When the U.S. Court of Appeals for the D.C. Circuit struck down the Consumer Financial Protection Bureau’s structure as unconstitutional last month, it prescribed a fix that raised the stakes of this year’s presidential election, the National Law Journal reported yesterday. Unsettled by what it called the “massive, unchecked power” wielded by the young agency’s director, the panel of judges called for allowing the president to remove the CFPB’s leader at will, rather than “for cause.” President-elect Donald Trump spells trouble for the consumer bureau. Lacking a filibuster-proof Republican majority in the Senate, any move to dismantle or otherwise defang the 5-year-old agency will likely prove an uphill climb on Capitol Hill. Trump could make his mark on the agency by installing new leadership — a replacement for CFPB Director Richard Cordray. The CFPB is expected to appeal the three-judge panel’s decision to the full D.C. Circuit, but a question hanging over the transition is whether Trump will still try to replace Cordray — either by invoking the D.C. Circuit panel’s decision or finding cause to fire him. The House Financial Services Committee has led the charge against the CFPB, passing a bill, the Choice Act, that calls for limiting the agency’s power to penalize financial firms for “abusive practices” and substituting a bipartisan five-member commission for the single-director structure.
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SEC Widely Expected to Ease Post-Crisis Rules During Donald Trump’s Administration

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President-elect Donald Trump, who has promised either to eliminate or sharply cut back the 2010 Dodd-Frank financial law, is expected to install critics of the Obama administration’s signature response to the financial crisis in positions at the Securities and Exchange Commission, The Wall Street Journal reported yesterday. Former SEC Commissioner Paul Atkins is heading up the president-elect’s transition team’s work concerning the SEC, the Commodity Futures Trading Commission and other financial regulators that historically operate independently of the White House. Atkins is an outspoken opponent of a range of post-crisis regulations, particularly the Dodd-Frank overhaul, as well as controversial reforms to money-market mutual funds. He is currently chief executive of Patomak Global Partners LLC. Trump’s election likely means a series of unfinished Democratic priorities, such as curbs to Wall Street pay packages, might be scaled back or scrapped entirely. The same holds true for rules the CFTC has yet to complete, such as limits on trading positions on commodities such as gold and sugar as well as efforts to rein in high-frequency trading firms.
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Fate of ‘Too Big to Fail' and CFPB Riding on Senate Outcome

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The next Congress may be forced to revisit two key components of financial regulatory reform, making the outcome of Tuesday's elections potentially crucial, CNBC reported yesterday. Federal courts this year have challenged the structure of an agency set up to protect consumers and the ability of regulators to designate financial institutions "too big to fail." Both bodies in question were established by the Dodd-Frank Wall Street Reform and Consumer Protection Act and have been at the center of bitter partisan rancor over how Washington polices the financial industry and business in the Obama era. Despite challenges from Republicans, the work of rule-writing under Dodd-Frank has largely rested in the hands of regulators since being passed by a Democratic-controlled Congress in 2010. But the legal challenges threaten to punt these issues back to Capitol Hill, where they would be handled very differently by a Republican-controlled Congress. The first issue concerns the Consumer Financial Protection Bureau, the agency tasked with protecting consumers that was established by Sen. Elizabeth Warren.  The second major issue that Congress might have to address is the Financial Stability Oversight Council's ability to determine which financial institutions are big enough to be held to special standards.
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SEC Investigating Banks Over Possible Mishandling of ADRs

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The Securities and Exchange Commission is looking into whether big banks have been mishandling securities in the arcane but sizable market for American depositary receipts, The Wall Street Journal reported yesterday. The SEC has sent subpoenas to four depositary banks — Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG and J.P. Morgan Chase & Co. — as it examines whether the banks have broken controls designed to prevent market abuse and tax fraud. SEC investigators are still in the process of interviewing potential witnesses, as well as analyzing a trove of data the banks sent in response to the subpoenas issued late last year. The investigation won’t necessarily result in enforcement action. One major focus of the SEC inquiry is the “prerelease” of ADRs, where banks issue depositary receipts without first having the underlying shares in their custody. The practice was intended to smooth trading by bridging different countries’ settlement times. Regulators worry that the prereleased depositary receipts could be abused for “naked short selling.” The agency is also looking at whether such receipts are being used to illegally arbitrage between different tax systems.
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Wells Fargo Confirms SEC Probe Into Its Sales Practices

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Wells Fargo & Co. confirmed in a quarterly filing that the Securities and Exchange Commission is one of the federal and state agencies probing matters related to its sales practices, the Wall Street Journal reported today. The San Francisco bank didn’t specify what the SEC is looking, for but the filing follows a Wall Street Journal report that the agency is in the early stages of probing whether Wells Fargo violated rules around investor disclosures and other matters relating to its recent sales-tactics scandal. That resulted in a $185 million fine in September and a raft of other federal and state investigations, including by the Justice Department. The SEC sent requests for information to the bank asking for documents in recent weeks, following three Democratic senators’ calls in late September for the SEC to investigate whether Wells Fargo misled investors and violated whistleblower protections while allegedly engaged in illegal sales practices.

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Lynn Tilton Defends Investor Disclosures in SEC Fraud Trial

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During a trial that could end her career in the securities industry, turnaround executive Lynn Tilton took the witness stand to defend against civil fraud charges stemming from her handling of a $2.5 billion investment portfolio, the Wall Street Journal reported today. Tilton and her Patriarch Partners LLC investment firm deny the Securities and Exchange Commission’s allegations that she hid losses from investors in her Zohar I, II and III funds, which are collateralized loan obligation vehicles packed with loans to troubled companies. In a trial that began last week, the SEC says that Tilton failed to tell investors in the Zohar funds that she was extending loan maturities based on her belief that the troubled companies had a chance to survive. Tilton said yesterday that investors knew that the loan portfolio included distressed companies and therefore should have expected those companies’ payments on their loans to be “irregular and lumpy.” Instead of calling troubled companies in default on the loans, Tilton said that she typically gave businesses more time to turn themselves around by allowing them to defer their interest payments. She said that she had broad discretion to make this call.

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SEC Considers Rule Targeting Shadow Banks

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The U.S. Securities and Exchange Commission is considering a rule that could make so-called shadow banking safer, Bloomberg News reported yesterday. Nonbanks argue that the rule will make it tougher for them to lend to small- and mid-sized businesses. Small businesses account for more than six out of 10 new private-sector jobs. However, the SEC is wary that business-development companies will get in trouble by using too much borrowed money to boost returns. Shadow banks have been picking up the slack since international regulators saddled traditional banks with stricter capital constraints following the 2008 financial crisis. Lending by nonbanks to small- and middle-market businesses, which is considered riskier than loans to big corporations, has mushroomed to more than $70 billion, according to the Small Business Investor Alliance.

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White House Defends SEC Chair Following Sen. Warren’s Letter

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The White House on Friday defended Securities and Exchange Commission Chair Mary Jo White from Sen. Elizabeth Warren’s call for President Obama to replace her as the agency’s leader, MorningConsult.com reported. “The president continues to believe that Chair White is the right leader for the Securities and Exchange Commission,” White House spokesman Eric Schultz told reporters today, according to a pool report. Sen. Warren on Friday called on Obama to unilaterally replace White as chair with one of the other two sitting SEC commissioners because of what Warren characterized as a dissatisfying record on disclosure rules.

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