Dodd-Frank, Glass-Steagall & Trump - Us Presidential Elections Impact

Dodd - Frank, Glass Steagall And Trump- Us Presidential Elections To Impact Investment Banking Firms

Trump’s opinions on the banking system have never been the encouraging ones. He has always complained about the easy treatment of bank employees and bailouts. An avid supporter with Bernie Sanders against the restoration of Glass-Steagall Act introduced in 1993- a separation between the securities and banking businesses, he also stands up for the breaking up of banks.

The Republican Party that Trump ran on struggled for Glass-Steagall to be reintroduced. Also, Trump was never in the favor of Dodd-Frank. According to him, it is too complex, expensive and comprises too much regulation. This justifies why he wants Dodd-Frank to be repealed. The argument supporting Trump’s interest in the repealing of Dodd-Frank lies in the fact that it has proven to be very expensive and complex than expected.

Some of the major US Banks also argue that laws should be the same for foreign banks and that they shouldn’t restrict only the United States banks. Also, they claim that these kind of restrictions injure the ability of US banks’ to compete on a global level. Whereas, smaller banks believe that the constraints associated with Dodd-Frank shouldn’t be extended to their policies. There’s no denying that Dodd-Frank should find a replacement because the Americans are still disappointed with the banks. So, what’s the problem with the Glass-Steagall Act? It is inexpensive, simpler and also offers safety and stability to the U.S banking system. The ideal ‘Trumpian’ deal that swaps Glass-Steagall for ‘expensive’ Dodd-Frank involves the breaking up of banks and excellently delivers 3 promises in one simple stroke.

Republic Jeb Hensarling, another hater of Dodd-Frank and recently mentioned Treasury Secretary, recently advised banks to opt for an alternative approach- the one where banks can have a choice to elect to operate in a lesser regulated environment provided that they have the highest ‘Camel-ratings’ (A score calculated by bank supervisors by measuring strength) and an equity capital value of 10% of the total bank assets which is undoubtedly a higher requirement than the latter Basel III.

Also, an advice of Paul Atkins can be taken into consideration. A Trump team member for financial matters and a former SEC commissioner, indicates his preference of choosing dismantling over repealing- Shedding off the objectionable parts and keeping the rest of the structure that every potential banker and investor has been working with for over 5 years in place.

This, however, can turn out to be a very huge undertaking. The law comprising more than 2000 pages has over 15 titles focusing on a wide spectrum of regulatory activities written with the help of around 400 latest regulations by numerous federal agencies. So far, these alone have produced over 20,000 additional pages comprising new rules. The introduction to the ‘Heavy-loaded law’ can turn out to be a very time- consuming and messy job, especially for hundreds of lobbyists. But still, it may be the most appropriate and ‘preferred’ way of experienced professionals like Paul Atkins to go about with the issue.

But the major question is whether they’ll listen to Adkins or not. Maybe not. Chances are there will be a political pressure to dump Dodd-Frank. This will, in turn, eliminate the most hated (By republicans) Bureau of Consumer Financial Protection, The Volcker Rule, living wills and Oversight Council among many others. It is expected to shake things by making all the previous rules written by regulatory bodies uncertain. This swap deal will tempt Trump to take a bold step in the beginning, but how will the general public cope with the reintroduction of Glass-Steagall Act- That’s the major area of concern.

The one thing that could be done is the modernization of the law. For example, including government obligations in securities and derivatives and bank loans will have to be made tradable. But out of the total, only a minute number of over 5 banks would be affected by this improvement. Most of the major banks would object, but at least 3 of them including Bank of America and Citigroup would prefer breaking off rather than managing underperformers.

If the banks opt for spinning off their investment banking divisions, the U.S banking industry would have 5 competitors- Merrill Lynch, JP Morgan and newly launched Saloman Brothers would vie with Morgan Stanley and Goldman Sachs. While Chase Manhattan, Bank of America and Citibank would compete with Wells Fergo for retail banking and national commercials. The force that comes with politics is usually not considered as the best option for an economic policy to be restructured, but maybe this time the case is opposite of what it has always been.