The future of tough Wall Street reforms put in place after the 2008 financial crisis were in jeopardy on Wednesday after Donald Trump’s stunning presidential victory and the continuing Republican control of Congress.
As a candidate Trump promised to roll back the Dodd-Frank Act, which increased oversight of the financial industry, created a powerful watchdog agency, required banks to boost their capital to avoid future bailouts, and brought more scrutiny to risky investments. The new rules and the federal Consumer Financial Protection Bureau have been assailed by the financial industry, which has been forced to pay millions in fines and has spent even more to deal with increased oversight.
Former Massachusetts congressman Barney Frank, who helped author the financial reform legislation that bears his name, said he expects a weakening, if not repeal, of the rules. Trump could appoint agency heads who are much more friendly to the industry and less likely to go after potential abuses, he said.
“It will be substantially diminished,” Frank said.
But Bruce Van Saun, chief executive of Providence-based Citizens Financial Group said he was “cautiously optimistic” about how a Trump administration would affect the industry and the overall US economy.
“A lot of this is directionally good, but there’s still some uncertainty about how it will play out,” Van Saun said. “I’m not sure you’ll get a Dodd-Frank repeal or elimination of CFPB, but you’ll see a push back.”
Trump’s victory has put Democrats and consumer advocates on the defensive.
The Republican control of Congress and a Republican president also helps the industry contain one of its fiercest adversaries: Massachusetts Senator Elizabeth Warren.
Warren, a Democrat, helped create the federal consumer agency and has sharply criticized many of the practices of financial institutions. Earlier this fall, she grilled John Stumpf, chief executive of Wells Fargo, for the bank’s widespread practice of opening fake customer accounts, eventually leading to his resignation last month.
“That scared a lot of bankers, that she would have a more prominent role.” said John Traynor, the chief investment officer of Connecticut-based People’s United Bank.
On Wednesday financial industry lobbyists sounded upbeat and confident.
The mutual fund industry’s lobbying association issued a statement congratulating Trump and seeking “reforms to financial regulation,” including at the Financial Stability Oversight Council, established under Dodd-Frank to monitor the safety of the financial system.
Banks see an opening to change the governing structure of the Consumer Financial Protection Bureau with a commission instead of one person in charge, said Richard Hunt, president of the Consumer Bankers Association, a Washington-based industry group.
Yet even with a Republican Congress and a Republican president, some government relations executives for investment firms said they did not anticipate a full-blown reversal of Dodd-Frank, but rather changes to various aspects of the regulations.
The Department of Labor’s fiduciary rule, slated to take effect in April, could be at risk. The measure requires brokers to meet the same bar as financial advisers: providing advice that’s in the best interest of their clients.
“I think that could be one of the early casualties,’’ said Massachusetts Secretary of State William F. Galvin, who oversees securities regulation.
Lauren Saunders, associate director for the Boston-based National Consumer Law Center, said it’s unclear what Trump would do as president, but the regulations implemented after the financial crisis were designed to protect working Americans who have strongly backed him.
“They’re besieged by predatory lenders, banks that are burdening them with high overdraft fees, and with student debt,” Saunders said. “Hopefully, he would see the merit of consumer protections that would help these families who have been exploited.”