On February 3, 2017, President Trump issued an executive order setting forth his administration’s core principles for the regulation of the U.S. financial system.  While generally touted as the administration’s first affirmative steps to dismantle the Dodd-Frank Act, the executive order actually does little to implement any immediate change but says a lot about the overall framework by which the Trump Administration intends to approach financial regulation.

In addition to standard executive order boilerplate, the executive order sets forth two specific actions.  First, it establishes the “principles of regulation” that the administration will look at in evaluating regulations.

Section 1. Policy. It shall be the policy of my Administration to regulate the United States financial system in a manner consistent with the following principles of regulation, which shall be known as the Core Principles:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Notwithstanding partisanship biases, I think most of these principles express ideas that most Americans could support, even if some would say there are additional principles (such as protecting consumers) that might also be relevant.  Even with some “norms” going out the window, I think everyone should be able to get behind the concept that our financial regulations should seek to “prevent taxpayer-funded bailouts.”  If nothing else, the Core Principles reflect generally mainstream Republican views of the goals (and implied limitations) of federal regulations.

I do wonder what Core Principle (f) was, and why it was deleted.  One of my colleagues suggested that President Trump may have overheard Senator Warren saying “Get the f*#^% out,” and misinterpreted the intent of the message.  I suspect the real story isn’t nearly as interesting, so I’m just going to assume this is accurate.

Update, February 8, 2017:  An eagle-eyed reader has noted that the Federal Register version of the Executive Order, as well as the White House link, now do provide Core Principle (f).  I certainly wish I had kept a screen print of the originally posted document (although I have a hard copy print out on my desk that still omits the (f).)  Turns out that Core Principle (f) might be the least controversial of all of the Core Principles, and one even Senator Warren would, presumably, not object to: “make regulation efficient, effective, and appropriately tailored.”  While I prefer all of my government regulations to be inefficient, ineffective and with a poor fit, I guess we can strive for something else.

Of course, regardless of what one thinks of the Core Principles (unless, I guess, you think the government shouldn’t “foster economic growth”), the devil will be in the details.  To that end, Trump’s executive order instructs the Treasury Secretary to report back within 120 days (Saturday, June 3rd, if you’re following along) on whether existing regulations comply with these Core Principles and what has and should be done to support the Core Principles.

Sec. 2. Directive to the Secretary of the Treasury. The Secretary of the Treasury shall consult with the heads of the member agencies of the Financial Stability Oversight Council and shall report to the President within 120 days of the date of this order (and periodically thereafter) on the extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles and what actions have been taken, and are currently being taken, to promote and support the Core Principles. That report, and all subsequent reports, shall identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.

One interesting (to me) angle of the executive order is that it uses a new regulatory body established by the Dodd-Frank Act, the Financial Stability Oversight Council, to, potentially, begin the dismantling of Dodd-Frank.

Many of the changes to Dodd-Frank will require legislative action, and Republicans have also indicated that version 2.0 of the Financial Choice Act may be introduced as soon as this week.  The aura surrounding regulatory relief has continued to lift bank stocks and bankers attitudes.  We hope that when words are put to paper and concrete steps are taken, the actions live up to these expectations.