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Dodd-Frank and the Donald:

What Can We Expect  for Financial Markets – Rules Enforced? Rules Changed?

by Michael Speranza, Senior Vice President,
Global Strategy, M&A and Marketing, IPC

It has been a few weeks since the U.S. presidential election. Regardless of one’s political leanings, everyone has been going through all the various emotional stages following what, for most, was an unexpected outcome. Disbelief, fear, excitement, doubt... most will probably agree that surprising and uncertain times are ahead.

In the weeks since the elections, pundits, journalists, regulatory experts, you name it, have opined on every move of the president-elect. Cabinet picks, first 100-day agenda, this Jared guy, how they are rebranding three buildings in New York City, the latest list of people moving to Canada and the TRAFFIC, trust me the traffic in NYC is miserable; please move to Washington, DC as soon as possible.

There is one thing certain and it is that Donald Trump will soon be the President of the United States, accompanied by a Republican House and Senate and wide reach to make sweeping adjustments to current laws, regulations and executive orders. So the big question our customers and industry wonks keep asking and speculating on is “What is Trump going to do with Dodd-Frank?” He has promised to dismantle the 2010 law yet in the very next breath also pledges to break up the big banks.

Campaign Promises vs. Marketplace Practicality

After 5+ years, 22,000 pages and an estimated $36B spent (according to the Wall Street Journal) by the federal government to implement the current provisions, surely he is going to take an educated look before “throwing the baby out with the bathwater” (as we say in the U.S.), isn’t he?

For me, working with some of the largest global financial institutions as they grapple with the requirements in the post-crisis financial era is like watching the animal chase scenes in Planet Earth.  Incredibly educational, suspenseful, ending in a conclusion which leaves you wondering if you are happy with the outcome. Is one happy or sad if the chased eludes capture? Happy or sad if the hunter goes hungry? Regardless, no high-fives. 

Banks have spent years implementing the sometimes byzantine rules and after all of the work and effort, have they achieved what they were set out to do? Banks have lost a bit of their mojo, no more invincible earnings reports and the profit machines have been brought down to earth and, it seems a bit boring, predictable and steady. Others might say broken, inefficient, an overreach of authority.

Two Key Dimensions to the Debate

So where is it going? There are at least two dimensions to this debate under a new political regime. The first is the actual statutory law and the second is the enforcement.

  • The statutory elements, what is written, how the regulatory bodies agree on implementations and compliance to it, and the timelines.  Many we speak with on the actual trading floors and running the businesses feel that banks will be reticent to roll-back many of the modifications that have been made over more than five years to implement the law. They say that there has been such a tremendous effort and expense that making changes will just cost more money and distract them from the core business of serving customers; sounds very altruistic. The second dimension involves making statutory changes that would require an act of Congress. Will the president-elect and new political leaders spend their time here? Regardless of the outcome here, any statutory changes are likely to take years to define, adopt and implement.
  • The enforcement entities, on the other hand, are guaranteed to change almost instantly.  There will be new chairs of both the SEC and the CFTC, the two organizations which have rained down billions in fines since the financial crisis. Will U.S. financial services participants conduct their business with the same level of diligence after the current chairs leave their posts? Will they continue to err on the side of caution and extreme oversight to ensure that they are in the good-graces of the regulators? 

Of all the conversations we have had in this space, most within financial services are hoping for the outcome which the market seems to be expecting. A less litigious and penal tone from US regulatory bodies and a nip/tuck on the current rules and guidelines. Remember those altruistic traders….there is a gleeful chorus on dispensing with the Volcker Rule and reducing the depth and breadth of supervision which has made smaller institutions and community banks less competitive. 

In the end, financial services firms have demonstrated an ability to adapt to the guidelines that are laid out. The questions that remain are will the guidelines change and when and what sort of tone will be set by the CFTC and the SEC. Exciting times and just in time for Planet Earth Part 2…