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President Trump's executive order on Friday (Feb. 3) has many asking "will Trump undo Dodd-Frank?"
Some believe the directive was meant to roll back the Dodd-Frank law passed in 2010. Just look at USA Today's headline from Friday that declares "Trump to dismantle Dodd-Frank Wall Street rules through executive orders."
But Trump's executive order doesn't mention Dodd-Frank by name. Instead, the order directs the secretary of the Treasury to issue a report within 120 days on any laws or regulations impeding economic growth.
That's why not everyone is convinced the law is under threat, including one of its primary authors, Barney Frank.
"The executive order that the president offered with a lot of hype has no specifics. In fact, it doesn't do anything," Frank told New York's WNYM radio station.
What Is Dodd-Frank and Why Does It Matter?
In July 2010, President Obama signed the "Dodd-Frank Wall Street Reform and Consumer Protection Act" into law.
The law was a response to the financial crisis of 2008. During the financial crisis, the federal government bailed out Wall Street banks by buying $700 billion of bad assets.
The government had to buy these assets to keep the banks from failing and collapsing the economy. Dodd-Frank was designed to prevent that from happening again.
Yet the law is complicated. The complete text is 849 pages long with 16 different chapters. To make things simpler, we broke it down into three major parts.
First, it empowers the government to classify certain companies as "systemically important financial institutions" (SIFIs). These are banks or insurance companies the government worries could be "too big to fail." Large banks like Capital One and U.S. Bancorp and insurance companies like AIG are considered SIFIs.
And they are regulated much more strictly…
SIFIs are required to keep more capital on hand, which limits their borrowing and lending.
SIFIs also have to pass an annual "stress test" to prove to they will survive if economic conditions worsen. If the company fails the stress test, it has to take immediate action to fix the problem, including selling off parts of its business to other companies.
These requirements add extra expenses to a company's operations, and it limits their ability to profit. Restricting how much a bank can borrow restricts how much it can invest.
Second, Dodd-Frank turned the "Volcker Rule" into law.
The Volcker Rule restricts the investment activity of banks. Banks can't engage in proprietary trading, which means they can't invest money from their own accounts.
Banks are also limited to which types of investments they can buy. Banks can't own more than 3% of hedge funds or private-equity funds, for instance.
Third, Dodd-Frank created the Bureau of Consumer Financial Protection (CFPB), originally proposed by Sen. Elizabeth Warren.
The CFPB is an independent regulatory agency designed to monitor the financial industry and ensure its practices are fair to consumers. Specifically, the CFPB monitors mortgages, student loans, and credit cards for "unfair, deceptive, or abusive practices."
The CFPB has been subject to at least four federal court challenges since its inception.
In October 2016, a federal judge ruled the president had the constitutional authority to remove the director of the CFPB at will. President Obama had argued the director could only be removed in cases of neglect of duty or incompetence.
Banks have argued the law unfairly burdens them and limits their potential for growth. Jamie Dimon, CEO of JPMorgan Chase & Co. (NYSE: JPM), has been one of the law's most prominent critics.
Specifically, Dimon has argued the Volcker Rule has hamstrung banks and prevented them from making investments that are more profitable.
Now that Donald Trump is president, it's possible Dodd-Frank could be repealed or undone.
The "Trump administration will be very good for kind of unleashing business," Dimon said in December.
Here's what you can expect to happen to Dodd-Frank after President Trump's executive order…