BULL MARKET

Trump is taking big steps to unravel rules designed to prevent another financial crisis

Obsession
Future of Finance
Obsession
Future of Finance

US president Donald Trump’s push to revise rules on banker bonuses is just one of the many steps his administration is taking toward revising regulations that were designed to prevent another financial meltdown. From rules on banks’ trading desks to remuneration, such rollbacks could finally give Wall Street a reason to cheer after other parts of Trump’s agenda have stumbled.

Several agencies are reviewing restrictions on banks making speculative trading bets with the benefit of customer money, known as the Volcker rule, according to the Wall Street Journal (paywall). A requirement for brokers to put customer interests ahead of their own may also be delayed for 18 months (financial firms say the overhaul could open them up to a deluge of lawsuits). And a 500-page regulation that would restrict Wall Street bonuses is probably dead.

Many of the regulations are part of the 2010 Dodd-Frank Act, which was passed by the Obama administration in the aftermath of the 2008 financial crisis. Banks have spent years working to comply with the rules, many of which are despised by the industry. They’ve also shifted business models, in some cases away from trading and into wealth management, for example.

Bankers point out that aspects of the industry that had nothing to do with the crisis are now more closely monitored and has had unintended consequences. For example the repeal of Glass-Steagall, which separated commercial banks from investment banks, may not have directly contributed to the subprime malaise. Yet in some ways, the Depression-era regulation resurfaced as the Volcker rule, which has been blamed for contributing to the recent dearth of volatility.

Meanwhile other regulations, like the fiduciary rule (brokers have to put retirement savers ahead of their own interests), could actually end up making them more money, according to another Wall Street Journal article.

And then there are global capital rules. US banks are hoping for relief from limits on leverage and requirements to hold more capital. The Treasury has recommended concessions on those regulations.

An easier burden for banks shouldn’t be a surprise, given Trump’s background and that of the rest of his administration. Despite tough talk during his campaign, Trump made his money in real-estate, an industry that tends to thrive when financing is plentiful. Goldman Sachs alumni lead the Treasury and the National Economic Council. His pick as the top Wall Street watchdog at the Federal Reserve is a veteran of private equity.

Banks stocks rallied after Trump was elected, but disappointment has set in since. JPMorgan CEO Jamie Dimon said in July that he was sick of all the “stupid shit” in America, and that there would be a lot more money for businesses if banks could deploy capital properly. Goldman CEO Lloyd Blankfein mocked Trump’s “infrastructure week” after it was overshadowed by palace intrigues.

A heavy legislative rewrite of financial rules seems unlikely, given the federal government’s inability to rework other controversial issues like health care. But agencies and regulators have some scope to water down financial regulations by altering how they’re implemented. This time, Wall Street could actually get some of what it wants.

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