President Donald Trump signed an executive order Friday instructing his administration to start rolling back Dodd-Frank's banking regulations. This was not a surprise. Republicans have hated the financial reform law, which was passed in 2010 in the wake of the housing bust and Wall Street’s meltdown, from the moment it was signed.1 Trump spent a whole campaign saying he'd dismantle the legislation. Now the president is following through.
And as usual, Trump’s rhetorical justification is both hilarious and transparently divorced from reality. “We expect to be cutting a lot out of Dodd-Frank because, frankly, I have so many people, friends of mine, who have nice businesses who can’t borrow money. They just can’t get any money because the banks just won’t let them borrow, because of the rules and regulations in Dodd-Frank,” Trump said at a Friday morning meeting with CEOs.
So Trump's “friends” can't get credit. Because of Dodd-Frank. The premise here is that financial reform has hamstrung commercial lending. Meanwhile, back here on Earth-1, commercial and industrial lending has risen to an all-time high since 2010.
Even as a percentage of the economy, lending is back to levels not seen since the 1980s.
Maybe the problem is that Trump's “friends” are in commercial real estate? Maybe this is an industry-specific drought? Nope—sure doesn't look like it.
Perhaps the problem is large banks. They've been hit with higher capital requirements and with more stringent oversight are having trouble? Maybe they're stuck in the spiderweb of onerous federal regulation?
Is there a problem with community banks? Perhaps. Lending by the little guys has rebounded far more weakly compared with bigger financial institutions.
But that doesn't necessarily mean that Dodd-Frank is at fault. Community banks have seen their market share eaten by large and nonbank lenders. And so, as this graph from a 2016 Federal Reserve Bank working paper shows, overall credit to small businesses rose healthily in the years after financial reform.
So I'm going to go out on a limb here. Maybe the fact that Donald Trump's “friends” can't get credit says more about them than it does anything about Dodd-Frank. Or maybe he's just talking out of his (presumably) orange-tinted ass.
1Often forgotten: The bill won votes from three Senate Republicans, including current member Susan Collins of Maine, which just goes to show that nominally bipartisan legislation isn't really that much safer from criticism than bills jammed through on a party-line vote. But I digress.