How will Deregulation Affect the Financial Sector?

By: ispeculatornew
Date posted: 06.20.2017 (6:46 am) | Write a Comment  (0 Comments)

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President Donald J. Trump has been mired in controversy since he was sworn into office. His agenda has been hamstrung by obstructionist Democrats and more than a handful of skeptical Republicans. His ambitious objectives such as building a border wall, imposing tariffs on foreign countries, repealing and replacing Obamacare, and deregulation have been stopped dead in their tracks, or have they?

While the media focuses its attention on drawing parallels between the Trump campaign and Russian election interference, the Trump White House has been quietly going about passing legislation to undo the Obama-era doctrine of extensive government involvement in most every aspect of corporate America.

Foremost among the changes sought out by Trump and the Treasury Department is the redrafting of Dodd-Frank. This comprehensive piece of legislation was passed in 2010 as a response to the global financial crisis that developed after Lehman Brothers collapsed. This set into motion a cataclysmic series of events that wiped out trillions of dollars from global markets and threatened to spiral into a global depression.

Obama and his team sought out legislation to prevent banks from over lending, by requiring them to meet with minimum stress test requirements. In early June 2017, landmark legislation was passed by the House of Representatives to radically transform the manner in which the financial system operates in the United States. The banking system remains the structural bedrock of the US economic engine. Too many changes and lackadaisical regulations may seriously undermine the performance and the credibility of the US financial system.

Banks and Financial Institutions Abuzz with Trifecta of Policies

Banks are strong when they promote lending, investment and saving – those are the 3 tenets of economic growth and prosperity. Back in the 1930s, the Glass-Steagall law was passed which recognized the separation between investment banks and commercial banks. That has since eroded, and the law was repealed in 1999. Banks have turned the corner when it comes to liquidity and credibility since the passage of Dodd-Frank in 2010. The stringent regulatory requirements inherent in the legislation ensure that banks will not over lend and are capable of withstanding significant stresses in the economy.

These measures also enhance client protection and ensure that a modicum of solvency, respectability and structural strength remains intact. Any failure in the performance of the economy or the bank should not adversely affect the economic system overall. There are now calls for the stress tests to be revisited, amended, and updated to meet current market conditions. We see evidence of renewed interest in bank stocks according to  Lionexo options trading experts. The financial sector is buzzing with the multi-pronged approach to revamping it in the form of Fed rate hikes, deregulation, and decreased taxation.

What Sort of Legislation Would Be Beneficial to the US Banking Sector?

Banks will be well served by determining issues like share buybacks and increasing dividends once the stress test results have been acquired. Banks are also currently limited in the amount that they can invest for the own profit/loss portfolio. Fortunately, the global community has toiled long and hard to create a standard to prevent a return to the conditions that precipitated the global financial crisis.

Unfortunately, US regulatory agencies have dismissed global standards as insufficient and have gone further to impose strict limitations and performance criteria on US banks. This has negative ramifications and could result in the US financial system being defunct. The CEO of Morgan Stanley (MS), James P. Gorman, believes that the US financial sector should take the time to digest the current rules and double down on what the economy requires to generate job growth, investment, and increased savings.

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