Republican presidential candidate Donald Trump this week said he would “issue a temporary moratorium on new agency regulations” upon taking office, but the only hint as to what that might involve was a reference to a 2013 Indiana executive order signed by his running mate. However, using that state order as a template would create complications at the federal level.
Despite having pledged in May to release a plan soon that would “be close to dismantling” the Dodd-Frank Act, the moratorium would not accomplish that goal. It is, as far as I’m aware, the second specific policy proposal Trump has made on financial regulation after urging the reinstatement of Glass-Steagall to be added to the 2016 Republican platform.
Using a state order as a template would create complications at the federal level.
The scope of the moratorium proposal is not yet clear. For example, would it cover rules that have been finalized but not yet taken effect? Rules that have been proposed but not yet finalized? Rules required by Dodd-Frank or other legislation that are still in development?
What about rules that would loosen restrictions on market participants or activities? Given Trump’s contention that regulation is dramatically undercutting economic growth, he might carve out an exception for the latter.
The executive order referenced by Trump was issued by vice presidential candidate and Indiana Governor Mike Pence on the day he took office at the state house in 2013. The order suspended rulemaking on any rule that agencies had not already announced that they intended to adopt. The order included seven exceptions to the moratorium for rules that:
- Were intended to create jobs or investment
- Repealed existing regulations or otherwise reduced regulatory burden
- Were required by a federal mandate that does not have a waiver option
- Were necessary to avoid federal sanctions from violating a court order
- Were intended to reduce waste, fraud, and abuse
- Would reduce state spending
- Were intended to address emergency, health, or safety matters
The order required any agency that intended to start a new rulemaking to explain to Indiana’s Office of Management and Budget (OMB) why it believed the rule would fall under one of those exceptions.
For all pending rules that had not yet been finalized and certain other pending rules, the order required agencies to give the state’s OMB a summary of the proposed rule, a statement on the rule’s potential to promote private-sector job growth and development, and an estimated date the rule would be adopted. The order further required the state’s OMB to conduct a “comprehensive evaluation and rigorous cost benefit analysis of existing administrative rules.”
What a federal regulatory moratorium might look like
It is important to note that if Trump won the White House and issued an Indiana-style order, it would not have the same potential consequences. Federal financial regulatory agencies are independent of the president. The White House Office of Management and Budget could temporarily delay certain new rules—excepting those for which Congress has given a specific deadline—but there is some debate as to whether that authority extends to independent regulatory agencies. An order intended to work in a way similar to Indiana’s would require legislation.
However, if legislative changes made it so that a moratorium similar to Indiana’s could be established on the federal level, a few assumptions can be made about its application to financial regulation.
First, a similar moratorium would not stop the rulemaking process for rules that financial regulators have already finalized or issued public notice, such as agency proposals for capital requirements for insurance companies and the net stable funding ratio. In that sense, the moratorium would not roll back or stop implementation of Dodd-Frank, the rules for which have largely either been implemented or are in the process of being developed and finalized. The Davis Polk Regulatory Tracker reports that as of July 19, about 80 percent of the 390 required rulemakings in Dodd-Frank have been either been finalized or proposed. These include the most consequential rulemakings.
About 80 percent of the 390 required rulemakings in Dodd-Frank have been either been finalized or proposed.
Second, we could expect an exception for rules that would reduce regulatory burden or federal spending. This would include provisions like those found in the JOBS Act of 2012 and a number of others included in the draft Financial CHOICE Act legislation proposed recently by House Financial Services Committee Chairman Jeb Hensarling (R-TX). There is no exception in the Indiana order for financial stability—something that is more of a concern for federal and global regulators—or for consumer protection.
Finally, a moratorium could block new regulatory efforts such as standards being developed by global regulators that some have dubbed “Basel 4,” which could include standardized models for capital calculations and greater disclosure by financial institutions. It would also block new exercises of discretionary authority such as the designation of new systemically important financial institutions.
Trump said in his speech that further details on his proposals would be released in the coming weeks. If his goal remains the dismantling of Dodd-Frank, the question of how he plans to do it will need to be answered in the future.