Global populism is about to hand investment banks a $27 billion bonus

LONDON — Populist movements such as Brexit and the rise of US President Donald Trump will help strip away a major hindrance for global investment banks — rules.

Trump’s plans to eliminate banking reforms put in place after the 2008 financial crisis could save US banks more than $27 billion (£22.6 billion), according to research house Opimas.

Investment banking revenue growth could exceed 7% by 2018, Opimas said, as a wave of deregulation sweeps the world.

Meanwhile a race to strip away financial rules could take hold in the UK and Europe to lure banks after the Brexit negotiations.

“We expect to see a handful of cities in Europe, notably Paris and Frankfurt, compete to lure banks away from London,” Opimas said. “This will take the form of tax incentives, labour law exemptions and special economic zones. The British government will have to respond by making its business climate more favourable to financial institutions.”

In the US, Trump has said he would dismantle the Dodd-Frank reforms, which were put in place with the aim of making the financial system safer after the 2008 crisis.

The regulatory package includes the Volcker Rule, which curbs banks’ trading activities. Opimas said financial firms would gain $6 billion from its repeal.

“The Volcker Rule is the easiest regulation to jettison, because regulators could simply immediately stop enforcing it. To date, there has been little evidence that the Volcker Rule has made the financial system safer, so it should be the easiest part of Dodd-Frank to eliminate,” Opimas said.

Around $20 billion would be “freed up” from reducing capital and liquidity requirements, Opimas said, “which will translate to a lower cost-to income ratio and higher return on equity.”

Here is the chart for the Dodd-Frank repeal:


And here is the outlook for revenue growth:

Opimas 3

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