Waters Says Reps Trying to Gut Dodd/Frank

usa dodd/frankThe top Democrat on the House Financial Services Committee accused the president of gutting Dodd/Frank with his most recent budget proposal.

California Democrat Maxine Waters made the remarks when the committee held a mark-up hearing on the President’s most recent budget for the next fiscal.

“The Trump budget also continues the misguided and reckless Republican effort to dismantle the Dodd/Frank Wall Street reform and protection act.” Waters said in her opening statements. “Republicans are leaving hard working Americans behind in order to do the bidding of Wall Street. They appear to be determined to take us back to the flawed system that led us to the financial crisis. Congressional Republicans are working in lockstep with this President, all the way looking the other way on his shameful actions.”

The Status of Dodd/Frank

Any legislative solution to Dodd/Frank reform has stalled.

A bill passed out of the House, but nothing has yet even passed a committee in the Senate.

But as Waters noted, the bill- or at least parts- can be gutted in other ways.

The Dodd/Frank fight currently receiving the most attention is over the Consumer Financial Protection Bureau (CFPB), a new agency which was the brainchild of Massachusetts Democrat Elizabeth Warren.

The CFPB investigates when financial firms take advantage of consumers. While securities are covered by the CFPB, most securities related fraud would be investigated by the Securities and Exchange Commission (SEC).

President Trump appointed noted CFPB critic Mick Mulvaney to lead the agency and his budget calls for cutting the budget of the agency as well.

Another battle more directly related to the trading industry involves the Volcker rule, which forbids banks from engaging in proprietary trading.

Earlier in the week, a Fed Vice-President indicated that the Volcker rule was likely to be augmented by the regulators.

“The Volcker Rule is an example of a complex regulation that is not working well,” Federal Reserve Vice Chairman Randal Quarlessaid Monday at an Institute of International Bankers conference in Washington. He noted further that ““material changes” needed to be made to the rule.

The Federal Reserve is one of five agencies responsible for implementing the Volcker rule with the others being: The Federal Deposit Insurance Corporation (FDIC), the Office of Comptroller of Currency (OCC), the SEC and the Commodities Futures Trading Commission (CFTC).

It appears those regulators will- presumably working in concert- rewrite the regulations to better define what proprietary trading means.

House Financial Services Committee Chairman Texas Republican Jeb Hensarling has long been a critic of the Volcker rule, arguing that its cumbersome guidelines ensnare banks when they are engaging in legitimate market making activity, specifically in the corporate bond market which is traded over the counter and requires banks and other financial institutions to make the markets.

Budget and Mark-Up

According to the US Constitution, the power of the purse strings is granted solely to Congress. The President has submitted a budget- one that is north of $4 trillion in total spending- but it is up to Congress to approve any spending.

Mark-up allows for each committee to comment on the budget and to offer any amendments which each legislator would want also considered during the process.

The House Financial Services Committee held its mark-up on March 6, 2018, allowing that committee to examine the financial services related portion of the budget.

Hensarling’s Warning

In his opening statement, Hensarling noted that the greatest “existential threat” faced by the USA is its out of control debt, now near $21 trillion.

“We now see that the national debt is almost $21 trillion which is more than $63,000 for every American citizen.” Hensarling stated. “There is a spending driven debt crisis in America, and I believe it is still the greatest existential threat in our country that receives little to no attention in Washington. If we do not wake up, we will wake up and find ourselves a second-rate economic power, second-rate military power and a second-rate moral authority.”

The US debt is financed by US Treasury bonds, and thus, has a direct and indirect effect on all traders.