Speculation always abounds when a different political party pulls up to the gates of the White House with a moving van — especially when Congress is dominated by the same party. Will the Trump Administration gut the Democrats’ efforts to place tighter reins on the pre-Great Recession abuses committed by some providers of financial services?

Will investors again want to get back into the banking business? Will less regulation encourage a resurgence of the formation of new banks?

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) was the political response to the 2008 financial crisis. Many believe that it was misguided and that it focused on financial services firms, which were not the culprits. I am fond of quoting a former boss of mine, the late Commissioner Talmadge Gilley, who said that “[fill in the blank] always swerves to miss the ’possum in the middle of the road and runs in the ditch.” He usually filled in the blank with the federal banking agency most recently the target of his disdain, but if he had been alive when Dodd-Frank was passed, he would have said “Congress.” In times of crisis, most legislative bodies will overreact because their constituents require response, and in the absence of a real plan, piling on happens.

Whether President Trump will take on financial regulation in the early days or even years of his administration, only time will tell, but bankers certainly hope so. The public, however, finds the Consumer Financial Protection Bureau(CFPB) a champion of reform of big institutions and quasi-financial services providers like payday lenders. When Wells Fargo Bank agreed to pay the CFPB $100 million over its fake accounts scandal (not to be confused with “fake news”), real people cheered because big banks should not get away with cheating the little guy. One of my favorite bankers, a thoughtful and reasonable man, told me that he was forced to cast his ballot for Donald Trump because he didn’t want Elizabeth Warren whispering in Hillary Clinton’s ear. In other words, he voted against the CFPB, not for or against the candidates. He hopes that despite Mr. Trump’s immoderate demeanor, policy-makers in the Administration will moderate overreaching regulation. Despite a lack of detail about Mr. Trump’s banking policy positions (some of which appear contradictory and all of which are vague, according to the American Banker), many bankers remain hopeful.

During the presidential campaign, candidate Trump proposed blocking all regulations not needed for “public safety.” In a broader view, a bank lawyer might argue that doing away with significant regulation of the financial sector would lead to new waves of predatory lending, insider abuse, excessive risk-taking, and bank failures. Is the public’s safety impacted by events inside the financial services industry? Of course, it is. The 2007-2008 predatory lending scams that foretold the Great Recession caused wide-spread evictions from homes and, therefore, both homelessness and hopelessness. Desperate people will find a way to feed their children, and some will steal to make that happen. Despair leads to crime and crime, to a lack of public safety. Dominos fall.

Another campaign conversation was a return to a contemporary version of the Depression-era Glass-Stegall Act, which kept retail and investment banking apart for decades. Undoing the repeal of Glass-Stegall would cramp the style of the largest banks — and some mid-sized institutions — that have enjoyed opportunities that are both safe and sound, as well as profitable. A reincarnation of Glass-Steagall would effectively break up the big banks. One wonders if this is really the result Republicans want.

Somewhere in between anarchy and oppression must lie a reasonable way to regulate financial services companies so that they are accountable but also free to innovate, earn a profit and stimulate the economy. A Clinton Administration might have asked for my advice, but a Trump Administration certainly won’t. He might be surprised that this Blue Dog Democrat has some pretty conservative ideas about regulation — just not crazy ones.
 

KATHRYN REED EDGE is a member in the Nashville office of Butler Snow LLP with offices in Tennessee, Mississippi, Alabama, Colorado, Pennsylvania, Georgia, Louisiana, New York, New Mexico, Hong Kong, Singapore and London, England. She is a member of the firm’s Regulatory and Government Relations Group and concentrates her practice in representing regulated financial services companies. She is a past president of the Tennessee Bar Association and a former member of the editorial board for the Tennessee Bar Journal.