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Mr Trump’s push to overhaul the Dodd-Frank legislation, which includes prohibitions on financial institutions trading for their own benefit, heralds the biggest regulatory shake-up in six years and sent bank shares sharply higher.
But the move carries political risks. The president demonised Wall Street, including Goldman Sachs, during his election campaign but is relying on former Goldman bankers, particularly National Economic Council chairman Gary Cohn, to craft changes likely to boost bank profits.
Mr Trump also ordered a review of a controversial Obama administration rule that would force investment advisers to act in the best interests of their clients, a significant victory for the financial industry.
“We expect to be cutting a lot out of Dodd-Frank because frankly I have so many people, friends of mine, that have nice businesses and they can’t borrow money,” Mr Trump said. “The banks just won’t let them borrow because of the rules and regulations in Dodd-Frank.” His spokesman called the legislation “disastrous”.
The president’s ability to pull apart Dodd-Frank on his own is limited. Only Congress can make big changes to the law, and although regulators have some discretion over how to implement provisions, they must go through a cumbersome bureaucratic process to alter their rules. [...]
The orders were greeted with alarm by Democrats, who portrayed them as a signal of the White House’s readiness to dole out favours to big banks regardless of the implications for financial stability. [...]
Full article on Financial Times (subscription required)
The Guardian: Trump's bonfire of banking rules could burn us all
[...] Republican congressman Patrick McHenry, vice-chairman of the financial services committee, last week suggested that the US should pull out of international bodies such as the Financial Stability Board (FSB) and the Basel committee that agrees standards for banks’ capital and supervision. McHenry’s argument is that US banks have been “unfairly penalised” by these “secretive” international forums.
It’s astonishing that a legislator from the country that inflicted Lehman Brothers on the world could be so critical of international efforts, with the US in the vanguard, to improve banking safety. But, even in its own terms, his argument is nonsense. US banks have been relative winners from reform. Their dominance of international financial markets is greater even than it was in 2008-09 and the explanation, in part, is surely that they were faster and more determined in raising the extra capital that the FSB and Basel committees requested. JP Morgan, Morgan Stanley, Goldman Sachs et al got back to the races years ago. By contrast, too many big European banks – think Deutsche Bank and Italy’s Unicredit – remain mired in crisis.
The alarming part of McHenry-style complaints is that they are a direct attack on the one part of the international reform agenda that appeared to have been settled – bank capital rules. Work in other areas, covering financial derivatives and central counterparties, is less advanced but also critical. “The ongoing support of G20 leaders is required to implement reforms fully, consistently and promptly,” FSB chair Mark Carney, our own governor of the Bank of England, reminded everyone last August. He was merely spelling out the facts. The FSB, formed in 2009, has few formal powers and instead relies on national regulations to implement standards all its members agree. Without the US, work would grind to a halt.