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President Signals New Era For Banks -- WSJ

4 Feb 2017 7:32 am
By Ryan TracyAnd Michael C. Bender 

WASHINGTON -- President Donald Trump ushered in a friendlier era for Wall Street's relationship with Washington, calling for an end to eight years of rising regulations and publicly embracing some of the industry's top leaders.

At a White House meeting, Mr. Trump promised Friday to undo a bevy of restrictions on financial firms put in place after the 2008 financial crisis, while praising the CEOs of BlackRock Inc. and J.P. Morgan Chase & Co.

The president thanked Larry Fink, chief executive of BlackRock, the world's largest asset management firm, for doing a "great job for me."

"He managed a lot of my money," Mr. Trump said.

The president then pointed to James Dimon, chief executive of J.P. Morgan, the largest U.S. bank by assets, as he discussed making changes to the Dodd-Frank law.

"There is nobody better to tell me about Dodd-Frank than Jamie," the president said.

Mr. Trump's moves sent shares of banks with large brokerage units up sharply Friday, helping push the Dow Jones Industrial Average to its biggest one-day gain in nearly two months. Morgan Stanley jumped 5.5%, while Goldman Sachs gained 4.6%. Retail brokerage Charles Schwab rose 2.6%.

Republicans and many in the financial industry cheered Mr. Trump's moves, saying they gave momentum to their long-sought goal of dismantling the 2010 Dodd-Frank financial overhaul and reducing regulatory costs for financial firms. Many Democrats panned the move as a shortsighted attempt to undo regulations that were a necessary response to the 2008 financial crisis.

The developments seemed improbable only months ago, when then-President Barack Obama's administration was putting the finishing touches on a broad regulatory crackdown on the industry and populist, anti-Wall Street rhetoric from both Mr. Trump, a Republican, and Hillary Clinton, his Democratic rival, played a role in the 2016 presidential campaign.

Mr. Trump's directives on Friday set in motion an administration game plan for scaling back what he views as overly burdensome financial rules.

One directs regulators to identify costly rules and laws, including the 2010 Dodd-Frank financial-overhaul. Another paves the way for rolling back an Obama-era retirement-savings rule that was on track to take effect in April.

The financial industry's influence in Washington has blossomed as Mr. Trump moved to hire top Wall Street executives as senior officials.

White House National Economic Council Director Gary Cohn, whose tenure as a senior executive at Goldman Sachs Group Inc. ended less than 40 days ago, engineered the administration's deregulatory plan.

Mr. Trump's actions on Friday could benefit Wall Street, especially investment advisers. His most immediate action was directing the Labor Department to review a recently completed rule restricting how retirement advice is provided.

In a memo, Mr. Trump directed the Labor Secretary to study the rule's impact and rescind or revise it if it is inconsistent with the administration's priorities. The memo doesn't delay the rule's effective date, but the Labor Department has that power.

The industry had unsuccessfully fought the rule during Mr. Obama's tenure. Backers say it protects investors, while critics say it limits their choices.

Mr. Trump also signed an executive order outlining regulatory principles, including preventing bailouts and making sure that regulatory policies foster economic growth.

The president ordered the treasury secretary and top financial regulators to come back to the White House with a report in 120 days evaluating how existing laws and rules comply with the principles.

Mr. Trump reiterated on Friday his promises to dismantle the Dodd-Frank law.

"I have so many people, friends of mine, that had nice businesses.They can't borrow money. They just can't get any money because the banks just won't let them borrow it because of the rules and regulations in Dodd-Frank."

Data show bank lending is growing, although some believe banks would be lending more without the new rules. Many data suggest it has been a lack of demand, not supply, that is tamping down borrowing by U.S. companies.

Obama-era financial rules have raised the cost of doing business for financial firms, causing them to pull back from offering certain loans and other products. Whether those changes were worth it in the name of financial stability is a matter of intense debate.

The White House said its goal isn't to let Wall Street run wild, but to cull back specific rules it believes are impeding economic growth without meaningfully making the financial system or consumers safer.

"We want to do it in a smart, regulated way," Gary Cohn, director of the White House National Economic Council, said in an interview Thursday.

Mr. Trump's regulatory review order won't by itself roll back financial regulations. Some policy changes will need approval from Congress, while others must be implemented by financial regulators whom Mr. Trump hasn't appointed yet.

Rep. Ann Wagner (R., Mo.) a leading opponent of the fiduciary rule, exclaimed "Woo-hoo!" after watching Mr. Trump sign the executive actions. House Financial Services Committee Chairman Jeb Hensarling (R., Tex.) described the president's moves as "the beginning of the end of Dodd-Frank." He said his committee expects to hold a hearing on legislation to change the landmark law "very soon."

Senate Banking Committee Chairman Mike Crapo (R., Idaho) called the moves "a step in [the] right direction to get financial regulation right, " without offering a timeline for considering legislation. The Senate will likely move more slowly, in part because Democrats, who are the minority party there, have more leeway to slow or block GOP action.

Democrats swiftly criticized Mr. Trump's actions, previewing what is likely to be a drawn-out political battle.

"Donald Trump talked a big game about Wall Street during his campaign -- but as president, we're finding out whose side he's really on," said Sen. Elizabeth Warren (D., Mass.), a prominent Wall Street critic who helped craft parts of Dodd-Frank.

She said his actions "will put two former Goldman Sachs executives in charge of gutting the rules that protect you from financial fraud and another economic meltdown," referring to Mr. Cohn, who was until recently Goldman's president, and Steven Mnuchin, a former Goldman banker who is Mr. Trump's choice for Treasury secretary.

Those men have said their goal is to boost the economy, not help Goldman.

"These latest actions from the Trump administration should show the American public that Trump and his cabinet of billionaires is putting the interests of Wall Street above the needs of the rest of us," said Rep Maxine Waters (D., Calif.), the top Democrat on the House Financial Services Committee.

It is not clear whether critiques like Ms. Warren's will register with Mr. Trump's supporters. A recent Chicago Booth/Kellogg School poll found 46% of the country opposed eliminating Dodd-Frank, while 43% supported it. Among Republicans, 73% wanted to scrap the law, while 61% of Democrats wanted to keep it.

While Dodd-Frank changes would face a fight in Congress, Mr. Trump could have a greater impact by reshaping the leadership of financial-regulatory agencies.

"The biggest bang for your buck is changing the referees, not the rules, " said Dan Ryan, the financial-services advisory leader at the consultancy PwC. He pointed specifically to two costly regulatory requirements for big banks that are subject to regulators' discretion: "stress tests" of lending portfolios and "living wills" that examine banks' preparations for bankruptcy.

Mr. Trump could act soon to fire and replace the head of the Consumer Financial Protection Bureau, which enforces rules for mortgages, credit cards, auto loans and other products. He can also appoint a vice chairman of the Federal Reserve in charge of bank oversight, a key post with significant influence over the enforcement of banking rules.

Write to Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

February 04, 2017 02:32 ET (07:32 GMT)

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