Post-Election

100 Days Of (Banking And Regulatory) Change

The ride may be a wild one, and it’s looming close — 100 days that may reshape the way banking is done and how consumers are protected.

We are talking, of course, of the first 100 days of the Trump administration, which may change the regulatory landscape across several fronts as applies to companies in across all those arenas just mentioned. The initial theme of the Trump’s first few months in office, aided, of course, by a Republican Congress, is “growth” for the short and long haul. This growth will ostensibly be spurred by heavy investments in infrastructure and also by tax cuts.

But growth also hinges on access to capital, especially for small businesses, which have long been the major drivers of economic output in the United States. The traditional banking system has shied from opening the lending spigots to SMBs in the wake of the financial crisis of 2008. A dampening on lending has also come because of regulations, of course via Dodd-Frank. Interest rates remain nearly at multi-generational lows even with the decision earlier in the month by the Fed to raise rates. So conceivably interest rates alone (or lack of them) will not spur growth.

Trump has said that he wants to slash regulations that have been levied on businesses, with a goal that states that for every new regulation, two others must be rescinded. As part of the general move toward deregulation, the president-elect has chimed in on his goal to do away with the Dodd-Frank Act, which of course was created after the financial crisis. The legislation put several changes in place for banks, among them the need to hold more capital on hand. More capital on the books means less capital out in the field, put to work, earning interest and boosting bank margins. It also means less money in the hands of borrowers. It also means that by returning capital to shareholders via dividends and stock buybacks, boosting returns to those holders, stocks in financial firms could continue to rally. So while the Dodd-Frank law may not be repealed in its entirety, capital requirements and stress testing may get a thorough look in the first few months of a Trump presidency.

Separately, the Consumer Protection Bureau (itself a creation of Dodd-Frank) is quite likely in the crosshairs of the incoming White House and the Republican Congress in early 2017. The wholesale dismantling of a governmental agency is no easy feat. But the key debate and dispute as relates to the CFPB ties into the actual structure of the leadership at the helm of the bureau. Could Director Cordray be asked to step down? Maybe (that is, if the PHH ruling from October is kept intact). Could a boy of commissioners be put in place? Maybe. On the oversight side of the equation, payday lenders and prepaid card issuers would likely not be under the same scrutiny that has been gathering steam in recent months.

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