Changes are coming to U.S. financial sector regulations. The only question is whether these changes will “repeal and replace” the Dodd-Frank legislation passed in 2010 or will represent more modest “tweaks” to address regulatory overreach.

Changes to U.S. financial sector regulation are likely in the coming months. But contrary to policy pronouncements from the White House and congressional Republicans, which presage a sweeping repeal and replacement of the 2010 Dodd-Frank legislation, actual legislative changes may be modest. There is scope, for example, for bipartisan action to relieve regulatory burdens on small community banks and to address inconsistencies in regulations limiting proprietary trading activities—the Volcker Rule—that reduce the liquidity of corporate securities.

More significant changes to the post-crisis regulatory framework could come from the regulatory agencies that enforce existing regulations. In this regard, a vigorous policy of non-enforcement and discretionary regulatory reversal is possible. However, without a major repeal of Dodd-Frank, regulatory laxity could be subject to judicial review and protracted legal disputes. This review process could limit regulatory discretion. At the same time, the assessment that only modest legislative and regulatory changes are likely is based on current Senate rules which require 60 or more votes to repeal or amend most parts of Dodd-Frank. If the Senate revises these rules, as the White House has recently proposed, more significant changes to the existing regulatory framework are possible.

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