President Donald Trump signed an executive order Friday ordering a 180-day review of two parts of the Dodd-Frank Act — the Orderly Liquidation Authority (OLA) and the construct and function of the Financial Stability Oversight Council.
As he signed the directives on Dodd-Frank, Trump said: “This is the subject of Financial Stability, the Oversight Council. Very important.”
“This is Orderly Liquidation Authority. It doesn’t sound like much, but it is. That’s a biggie. It doesn’t sound good, but it is,” the president explained.
At least one industry group was quick to comment on the president’s actions.
“SIFMA has long supported a regulatory authority to wind down a failing financial institution and eliminate taxpayer bailouts. We believe the current Orderly Liquidation Authority largely accomplishes this goal … yet stand ready to work with regulators and all stakeholders to evaluate possible enhancements that ensure taxpayers do not bear any future losses,” said Kenneth E. Bentsen, Jr., president and CEO of the Securities Industry and Financial Markets Association, in a statement.
House Financial Services Committee Chairman Jeb Hensarling applauded Friday Trump taking action to stop regulators’ ability to designate companies “too big to fail” and the use of the Dodd-Frank Act’s bailout authority pending reviews by the Department of the Treasury.
Trump ordered Mnuchin to conduct a thorough review of OLA and provide a report to the President within 180 days of the date of this memorandum.
The review shall include:
- The potential adverse effects of failing financial companies on the financial stability of the United States;
- Whether the framework for using OLA is consistent with the principles set out in sections 1(b) and 1(c) of Executive Order 13772 of Feb. 3, 2017 (Core Principles for Regulating the United States Financial System);
- Whether the availability or use of OLA leads or could lead to excessive risk taking on the part of creditors, counterparties, and shareholders, or otherwise leads market participants to believe that a financial company is “too big to fail”; and
- Whether a new chapter in the U.S. Bankruptcy Code, in which the claims against a failed financial company would be resolved pursuant to the procedures of bankruptcy law rather than the provisions of the Dodd-Frank Act, would be a superior method of resolution for financial companies.
- Trump also directed Mnuchin to conduct a thorough review of the FSOC determination and designation processes under section 113 and section 804 of the Dodd-Frank Act and provide a written report to the President within 180 days of the date of this memorandum.
“Democrats promised the American people that Dodd-Frank would end ‘too big to fail’ and bailouts, but with Dodd-Frank the big banks got even bigger and bailouts are enshrined into law,” Hensarling said in a statement.
Dodd-Frank “actually gives unelected Washington bureaucrats the power to meet behind closed doors and pick and choose which companies will be ‘too big to fail’ and which companies will be ‘too small to matter,’” Hensarling, R-Texas asserted. “Even worse, those anointed by the bureaucrats as ‘too big to fail’ are first in line to receive taxpayer-funded bailouts if they get in trouble. It’s absurd and unfair to hardworking taxpayers.”
Trump’s order comes just days after Hensarling announced on April 19 that he will hold a hearing to discuss the Financial Choice Act, his bill to replace Dodd-Frank, on April 26.
The Financial Services Committee approved the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act in September.
The Committee plans to discuss the updated version of the bill, dubbed Financial Choice Act 2.0, at the April 26 hearing.
Rep. Maxine Waters, D-Calif., the top Democrat on the Financial Services Committee, rebuked Trump’s order, stating: “Let’s be clear: These two executive actions are two steps back to the risky financial system that brought us the Great Recession and very nearly dragged our economy into a death spiral.
“Orderly Liquidation Authority is the back-up mechanism we put in place to ensure that when a large financial firm like Lehman Brothers fails, it can be wound down safely, without a bailout or bringing the economy crashing down with it. If Orderly Liquidation Authority is replaced with so-called enhanced bankruptcy, the next taxpayer bailout for Wall Street could be right around the corner.”
Another important lesson from the financial crisis, she continued, “demonstrated by the near catastrophic failure and bailout of AIG, was the need to more thoroughly supervise mega-sized non-banks, to prevent threats to our economy. Here too, Trump is taking us back to the risky system we had before Wall Street reform, with an executive action that paves another path for Wall Street to run free of needed oversight.”
Said Waters: “By using his executive authority to dish out favors for Wall Street, Donald Trump is once again showing who he really is, and in the process, putting our economy on a dangerous path.”