Guest essay by Eric Worrall

According to Vox, the Obama era Dodd-Frank banking laws will provide a future Democrat President with all the power they need to force banks to abandon fossil fuel companies, without needing approval from the other branches of government.

The next president can force the financial sector to take climate change seriously

With the help of Dodd-Frank, the president won’t need Congress.By David Roberts  Feb 7, 2020, 10:20am EST

A growing chorus of voices is warning that the financial system — big banks, insurers, and other asset managers — is highly vulnerable to climate change. As Mark Carney, head of the Bank of England, explained in a 2018 speech, climate change threatens financial stability in three ways.

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Existing Dodd-Frank authorities give the president wide latitude to address climate

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This new school of thought, that regulators should take a more active role in systemic stability, is known as “macroprudential regulation.”

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Notably, the major concepts involved in macroprudential regulation, like “systemic risk” and “stability,” were left almost entirely at regulators’ discretion to define. As with the Clean Air Act’s vague definition of “pollutant,” the idea was that regulators’ understanding of system risk and stability would evolve over time, as would regulations.

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It would be straightforward for regulators to require that climate change be integrated into “risk weights,” such that investments in large emitters and industries vulnerable to the effects of climate change are rated as riskier, diverting capital.

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An ambitious suite of executive actions to address climate change might not be an inspiring thing to campaign on, but every candidate should be thinking about one. Executive powers are broader than Democrats tend to appreciate, broader than Obama ever used, and broader yet in the wake of Trump. (See this package from the American Prospect on how the next president could use those powers.) 

Executive action could do a great deal to accelerate some of the social tipping points that will be necessary to trip the US into rapid action on climate change. The financial system already seems on the verge of such a tipping point. An ambitious president could push it over the threshold.

Read more: https://www.vox.com/energy-and-environment/2020/2/7/21127596/climate-change-financial-sector-dodd-frank-risk

A point the author overlooks is this apparently unconstrained Presidential power to dictate to the banking system works both ways.

On the basis of the argument presented, any President can unilaterally upend the banking system, including the current President. President Trump could use Dodd-Frank to rule that investments in renewables are high risk; the collapse of Solyndra and other large renewable failures provides ample evidence to back such a claim.

But should this Dodd-Frank power be used? Should it even exist?

President Trump does not support Dodd-Frank, and has no plan to abuse this power to bypass legislative oversight, even in the face of provocations from a Trump derangement syndrome obsessed Congress. In 2017 Trump pledged to dismantle the Dodd-Frank law, and in 2018 Trump signed an act to exempt “dozens of banks” from Dodd-Frank oversight.

President Trump appears to recognise Dodd-Frank for what it is – a grossly overpowered financial executive enabling act, a panic response to the 2008 GFC, which should never have been passed. Whatever short term gain could be achieved by exercising such power to achieve policy objectives, even policy objectives many of us support, would be more than offset by long term damage such an exercise of arbitrary executive power would cause to America’s reputation as safe place to invest.