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Republicans see Dodd-Frank reform next Congress, even with Trump loss

Some Republicans think they can overhaul the Dodd-Frank Actif Donald Trump wins the presidency this November. And even if Hillary Clintontakes the Oval Office, there might be room for regulatory relief as industry buildsa case that the Dodd-Frank Act has harmed the economy.

Jeb Hensarling, R-Texas, said his marquee legislation, theFinancial CHOICE Act, will not be enacted this year since President BarackObama considers the Dodd-Frank Act part of his legacy and will veto anysignificant reform.

"I'm not under any illusion that the Financial CHOICEAct is going to be signed into law in this particular Congress,"Hensarling said. "As Margaret Thatcher once said, 'First win the debate,and then win the vote.'"

Hensarling spoke at the Securities Industry and FinancialMarkets Association's annual meeting in Washington, D.C., this week. He saidTrump shares his view of the harms from Dodd-Frank, but he said there could beopportunities for regulatory reform even if Trump loses.

He said some Democrats have expressed concerns over thelegislation but will not back up that rhetoric with votes due to fear ofupsetting Obama or feeling intimidated by Sen. Elizabeth Warren, D-Mass. Thatmight leave some opportunity for regulatory relief in the next session ascongressmen tend to start terms with more optimism and there is growingevidence that rural communities and small businesses have been harmed by thelegislation, Hensarling said.

"That might be the triumph of hope over reality, Idon't know. Ask me the day after the election," he said.

While a Trump victory would clear the path for the FinancialCHOICE Act, which would exempt banks from many of Dodd-Frank's requirements ifthey hit certain metrics, former SEC Commissioner Daniel Gallagher saidRepublicans could go further.

At the annual meeting, Gallagher said the Dodd-Frank Actnever received much Republican support, in contrast to Sarbanes-Oxley, whichdid have bipartisan support.

"Dodd-Frank is the only piece of major financialservices legislation in United States history that was not bipartisan. … It issusceptible to massive change," said Gallagher, now the president ofPatomak Global Partners LLC.

Gallagher said a Clinton win would limit the conversation to"tweaking" Dodd-Frank.

Hensarling's push to "win the debate" led to acall on SIFMA attendees to submit data and anecdotes to the House FinancialServices Committee showing Dodd-Frank's harm.

Over the course of the day, it was clear that winning thedebate would be difficult as even SIFMA's attendees did not agree on the stateof regulatory reform or on Dodd-Frank's impacts. Hensarling said thelegislation was a principal cause for the economy's anemic recovery after the2008 recession. Less than an hour later, Jonah Crane, deputy assistantsecretary for the Financial Stability Oversight Council, said complaints aboutthe recovery's weakness were his "biggest pet peeve."

"Of course it's the slowest recovery since World WarII. It was also the most massive financial crisis since the GreatDepression," Crane said.

During a panel of former regulators, there was a consensusthat credibly ending too-big-to-fail was key to eliminating much ofDodd-Frank's most burdensome requirements. The regulators said efforts onliving wills and total loss-absorbing capacity have made significant progressbut public opinion failed to appreciate the improvements.

"It's really going down a constructive path, but Idon't think people appreciate it. They think it's all a rigged system,"said John Dugan, partner at Covington & Burling LLP and former OCCcomptroller.

Sure enough, during the last panel session of the day,moderator Robin Wigglesworth, U.S. markets editor for The Financial Times, expressed skepticism that too-big-to-fail hasbeen addressed.

"You can hold all the capital in the world, butfundamentally if a [systemically important financial institution] or aJPMorgan [Chase &Co.] suddenly hits a sticky patch — it'll never be explicit, it'llalways be implicit — but frankly, they'll bail them out," Wigglesworthsaid. "They'll do it, and we know they'll do it."