Financial Deregulation on the Way
The regulations imposed after the 2008 financial crisis were meant to forestall repeat offences by major banks, but President-elect Donald Trump plans to “dismantle” those laws.
Republicans have been opposed to the Dodd-Frank Wall Street Reform and Consumer Protection Act since its inception, threatening to either defund it or neuter it at every turn. (Source: “Donald Trump’s Transition Team: We Will ‘Dismantle’ Dodd-Frank,” The Wall Street Journal, November 10, 2016.)
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At the very least, Republicans wanted certain exemptions carved into the law, but President Barack Obama’s veto power always stood in their way.
With President Trump coming into office, however, the GOP have enough space to take apart the financial reform package. In fact, the Trump transition team—which helps put together a cabinet and policy agenda for an incoming president—issued a note saying that deregulation is on the way.
They joined the chorus of Republicans who who believe that Dodd-Frank did nothing more than cripple the economy during a recession, saying they would “replace it with new policies to encourage economic growth and job creation.”
Moreover, the list of possible Treasury Secretaries in a Trump administration is chock-full of Dodd-Frank opponents. They were the ones who opposed financial regulation in spite of evidence that it could curb reckless behavior on Wall Street.
Senator Chris Dodd and Representative Barney Frank squared off against many of these candidates when they were cobbling together the Wall Street Reform and Consumer Protection Act. After the two lawmakers forced the bill through Congress, it was renamed in their honor.
However, the true architect of Dodd-Frank was President Obama who gave it direction. It has been considered a signature policy of the Obama era, so to undo it would be considered a political victory for the GOP.
Leading the list of possible candidates is Texas Rep. Jeb Hensarling. He is currently the chair of the House Financial Services Committee and the author of an alternative financial reform package which never saw the light of day.
Needless to say, the talk of financial deregulation came as welcome news to Wall Street.
The KBW NASDAQ Bank Stock Index (INDEXNASDAQ) skyrocketed 12% this year, with much of those gains coming in the last week. Increased regulatory standards, including higher capital ratios and more demanding disclosure policies, have eaten into bank profits in the last few years.
Under a Trump presidency, Wall Street believes those trends can reverse.
