The Impact Of Trump's Effort To Roll Back Financial Regulations

NPR's Scott Simon speaks with analyst Karen Petrou of Federal Financial Analytics about President Trump's plans to cut back financial regulations created after the financial crisis.

SCOTT SIMON, HOST:

Donald Trump moved to fulfill a campaign promise this week. He signed executive orders to begin to roll back the financial regulations of the Dodd-Frank bill that was passed in 2010 after the U.S. financial crisis. To talk more about what we know and what might be likely, we're joined by Karen Petrou. She's managing partner of Federal Financial Analytics, which advises financial firms on public policy. Thanks very much for being with us.

KAREN PETROU: Thank you.

SIMON: Do you get a sense of what's on the chopping block?

PETROU: It's hard to tell from the executive order, but I think it is queer that the Consumer Financial Protection Bureau is on the chopping block, along with some of the rules that the president believes suppress credit availability.

SIMON: Well, explain that bank shut to us, if you - if you will - about credit availability - because a lot of people think a low interest rate is a good idea for them.

PETROU: That's true, but low interest rates combined with some of the cost of the new requirements, especially the capital requirements for the biggest banks, make it very difficult for the banks to lend profitably at these very low rates. Their cost of capital and their operating cost is very high. And ultra low rates make it very inexpensive to borrow, although the growth in the economic development that supports recovery is also made weaker by them.

SIMON: And what's the case against the Consumer Financial Protection Bureau that some people have had?

PETROU: I think the case against it is from some in the industry and many Republicans - is that it is insulated from congressional accountability, freed from the appropriations process and, from some in the industry's perspective, out there writing very binding, very difficult and very complex rules. Defenders believe those rules are critical to protect borrowers, but that's the case the opposition has against the CFPB.

SIMON: Yeah, and the numbers have changed in the Congress, so they feel they have the votes to do it.

PETROU: I think that's right, although it will be very controversial. The CFPB was originally Senator Elizabeth Warren's idea, and she is really mounting the barricades to defend her baby.

SIMON: Dodd-Frank was put together with full advice from the financial community on Wall Street. In fact, there were some Democrats that were critical of that. They felt that, on the contrary, it protected the major lending institutions and banks - investment banks - too much. How are they likely to receive a rollback now?

PETROU: I think it depends on what it is. A critical aspect of what appears to me Mr. Trump's plan would be to roll back a part of the law that President Obama thought was essential, but big banks do, too. And that's the way a very large financial institution and not just a bank - a company like ARG or Lehman - would be handled if it failed. There are provisions in Dodd-Frank where I think there's a strong difference of opinion between congressional Republicans and, I think, the Trump administration. And some of the bigger banks who are fearful about changing that aspect of the law.

SIMON: Is there a provision, in particular, that you think valuably protects consumers that you would worry about disappearing?

PETROU: Yes and no. I think the provisions in Dodd-Frank that built on, but were not necessarily required in addition to old law give the regulators the authority to sanction bad actors and particularly the Justice Department. The real - in my opinion, the real benefits to consumers is clear information on which to make the best informed decision they can. But because even simple products like mortgages are complex, especially for people who may not speak English or whose literacy is compromised, I think you need really tough enforcement to make lenders do the right thing. And we haven't seen that, Dodd-Frank notwithstanding.

SIMON: Karen Petrou is managing partner of Federal Financial Analytics. Thanks very much for being with us.

PETROU: Thank you, Scott.

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