Self-regulation is so 1990s.
But US President Donald Trump wants to bring it back, betting Americans have short enough memories that they will forget that the new rules were put into place to protect them, however imperfectly, from a repeat of the devastating 2008 financial crisis.
Given public views of Wall Street and the makeup of Congress, however, he may have some difficulty in removing those rules.
The latest reason he offered for the need to roll back post-crisis reform was, as Slate’s Jordan Weissmann put it, “hilariously flimsy.”
“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 meeting with CEOs last week.
There is little evidence of a credit crunch in the US economy. But whatever Trump’s motivations, we know, thanks to this handy breakdown from my colleague Frank Chaparro, what areas he and the Republican-controlled Congress intend to target. These include taking a more hands-off approach to banks considered too-big-to-fail and a roll back of the “Volcker rule” intended to prevent investment banks from gambling with customers’ money.
However, even though bank shareholders have salivated at the prospect of a return to the heyday of Wild West Wall Street, bidding stock prices higher, there are still more questions than answers.
Sean Tuffy, head of regulatory intelligence at Brown Brothers Harriman, has gone through a useful mental exercise that helps shed some light on what might happen — and what might not. In particular, Tuffy is sceptical that deregulation will simply sail through Congress given popular discontent with big banks and the fact that Trump himself ran for office on an anti-Wall Street platform.
Now that he is being advised by several former Goldman Sachs bankers, some have assumed the president will simply axe the existing legislation. But as Tuffy notes, it’s not that easy.
“Clearly there will be an attempt to reform elements of Dodd Frank,” he says. “However, the Republicans don’t have a supermajority. Any substantive change will require cooperation from the Democrats. We can expect any attempt to repeal key elements of Dodd Frank to be met with stiff resistance.”
In addition, says Tuffy, “the Trump administration needs to walk a tightrope on financial regulatory reform because anything seen as a giveaway to Wall Street could spark voter discontent. Given these two constraints, a bonfire of financial regulation still seems unlikely.”