Greenspan: Dodd-Frank repeal would be ‘nearly impossible’

The former Federal Reserve chairman told PEI's CFOs and COOs Forum that the Act, which includes the Volcker Rule, was "embedded in the system".

The Dodd-Frank Act has generally been a negative for the US economy, but scrapping it and starting from scratch will be very difficult, according to former Federal Reserve chairman Alan Greenspan.

Speaking at sister publication Private Equity International‘s CFOs & COO’s Forum in New York on Wednesday, Greenspan said it would be a “remarkable event” if incoming President Donald Trump repealed the act, given its density.

“The complexity of unwinding such regulation embedded in the system makes it nearly impossible. The Trump administration might take half of it down but I don’t think that’s enough,” he said.

He added one small positive aspect of the act is its increased capital requirements, and while he would eliminate all regulations to financial intermediaries, he would require they retain 20 percent of their capital [rather than investing it].

In December, the Fed gave banks the option of applying for an extension of up to five years to conform with the Volcker Rule, a section of Dodd-Frank that restricts banks from trading off their own accounts and limits their investments in private investment funds to no more than 3 percent of the bank’s Tier 1 capital.

The rule, which has a July 2017 compliance deadline, has spurred secondaries sales in recent years with banks shedding alternatives fund assets.

Greenspan, who once described private equity as the “investment vehicle of the 21st century,” was chairman of the Federal Reserve System between 1987 and 2006.

His five terms at the helm were unprecedented, and his influence over the economy unparalleled. On 26 February 2007 Greenspan forecast a possible recession in the US before or in early 2008. Stabilising corporate profits are said to have influenced his comments. The following day the Dow Jones Industrial Average decreased by 416 points, losing 3.3 percent of its value.