Trump’s gift to Wall Street

The president's plan to do “a big number” on Dodd-Frank, the 2010 legislation designed to prevent another financial crisis, is an enormous gift to bankers.


Elizabeth Warren: co-author of Dodd-Frank
(Image credit: Copyright (c) 2016 Rex Features. No use without permission.)

With so many executive orders "flying off" Donald Trump's desk, it's hard to know which "deserves the loudest howls of outrage", says Jill Abramson in The Guardian. The US president's immigration ban is the most "overpoweringly awful", but his plan to do "a big number" on Dodd-Frank, the 2010 legislation designed to prevent another financial crisis, is an "enormous gift" to Wall Street.

As Elizabeth Warren, who helped craft parts of Dodd-Frank, told The Wall Street Journal, "Trump talked a big game about Wall Street during his campaign but as president we're finding out whose side he's really on". She pointed out that two former Goldman Sachs executives Gary Cohn and Steven Mnuchin would be in charge of "gutting the rules". During his campaign, Trump lambasted Goldman Sachs and promised a return to the Depression-era Glass-Steagall Act, which separated the investment and commercial banking arms of big institutions.

The prospect of 2,300 pages of costly, burdensome and complicated regulation being torn up prompted a sharp uptick in the shares of financial firms amid investors' hopes that Trump will "preside over a boom in banking", says Ben Martin in The Daily Telegraph. Many Dodd-Frank measures are unpopular with bankers, including the Volcker Rule (named after former Federal Reserve governor Paul Volcker), which abolished proprietary trading (the practice of firms speculatively trading their own funds for profit).

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

There is some evidence that the extra costs that the legislation imposed have prevented banks from lending as much as they would like. This is something that Trump alluded to recently, when he spoke of the "many people, friends of mine, that have nice businesses" but "can't borrow money".

However, Dodd-Frank also made the US banks less risky and increased investors' confidence in the sector, says Ian King on Sky News. Mario Draghi, president of the European Central Bank, is just one of the "level-headed, serious folk" who think that Trump could be creating the conditions for another financial crisis.

Speaking to The Times, Professor William Black, professor of economics and law at the University of Missouri-Kansas City, said that, alongside Brexit, dismantling Dodd-Frank risked reinstating a "global race to the bottom on banking regulation". But in any case, nothing will happen any time soon, say Steven Dennis and Elizabeth Dexheimer on Bloomberg. The Republican majority in Congress can't agree on a plan to replace Dodd-Frank and the Democrats are "vowing to fight". So the process of scrapping or replacing it with something else might take years.

Let's hope it doesn't, says Allister Heath in The Daily Telegraph. Trump's decision to axe the "disastrous" Dodd-Frank is "most welcome" and the left-wing "hysteria" about Republicans disregarding financial stability is "nonsense". Drastic change was of course needed after the financial crisis, and some of Dodd-Frank's provisions are excellent, but "many were bad, reducing the availability of credit and the choice of lenders and brokers". Nor should we forget that although Wall Street was "broken", it was the authorities who "drove the bubble".

We must now hope that the Republicans are able to "dump the bad regulations" while making sure that banks have enough capital to be safe and don't become "too big to fail". And Britain needs to "watch" and "learn". A "reformed, reinvigorated Wall Street would pose a much greater threat to the City than even the hardest of Brexits".

Emily Hohler

Emily has extensive experience in the world of journalism. She has worked on MoneyWeek for more than 20 years as a former assistant editor and writer. Emily has previously worked on titles including The Times as a Deputy Features Editor, Commissioning Editor at The Independent Sunday Review, The Daily Telegraph, and she spent three years at women's lifestyle magazine Marie Claire as a features writer for three years, early on in her career. 

On MoneyWeek, Emily’s coverage includes Brexit and global markets such as Russia and China. Aside from her writing, Emily is a Nutritional Therapist and she runs her own business called Root Branch Nutrition in Oxfordshire, where she offers consultations and workshops on nutrition and health.