Trump victory opens a period of uncertainty for financials

Trump victory opens a period of uncertainty for financials

Donald Trump’s White House win has created a wave of uncertainty ranging from US interest rates and Janet Yellen’s future to the outlook for the Dodd-Frank Act and financial regulation.

Trump said in August he’d issue a temporary moratorium on new legislation and has blasted the Fed and its chairwoman, Janet Yellen, who he accused of creating a “false economy” by keeping interest rates “artificially low".

He has also said he’ll roll back 2010’s Dodd-Frank financial regulation law, financial reform which has cost banks billions of dollars and transformed how they do business.

Dodd-Frank created the framework for heightened US bank and financial regulation in the wake of the financial crisis. It includes regulatory capital requirements, new rules on over the counter derivatives and tougher regulation on credit rating agencies.

“Donald Trump has advocated in favor of loosened regulations," said Virginie O'Shea,  research director, institutional securities & investments, Aite Group.

"Although he pursues the elimination of all existing regulation, it is obvious that it is an extremely complex task, considering the need for the views of both the House of Representatives and the Senate to align.

“He might, however, loosen certain regulations in the longer term, such as capital requirements for financial institutions, or maybe eliminate a few specific lines from Dodd-Frank. 

"Although Dodd-Frank is almost implemented, a few areas are still in progress. In the short term, expect the brakes to be put on requirements that are yet to come into force.”

Jeremy Lawson, chief economist at global asset manager Standard Life Investments, added that there is a "strong prospect that the regulatory noose will loosen across finance".

Whether Trump plans to swap Dodd-Frank for new regulations is unclear.

Many on Wall Street would argue that bank stocks have been hurt by tough reform and weakened by a climate not conducive to supporting a stronger level of economic growth.

Trump’s victory might turn bankers more hopeful of some relief on Dodd-Frank rules that have hit some of their business lines.

The possibility of tougher rules and tax changes by a Clinton win had many fearing a headwind for financial sector stocks.

Danske Bank said it expected financials likely to underperform in the event of a Clinton victory, since they would have faced further regulation.

However there is now concern that Trump's protectionist trade measures will be a negative for the financial industry and damage banks with large international businesses.

“Dodd-Frank is done for,” Karen Petrou of Federal Financial Analytics wrote in a research note Wednesday.

While she said the law would only change over time, its structural assumptions about regulation are “smashed.”

Most Popular

Thought Leaders

HSBC: Navigating EM complexities through customisation

Matt Kiraly and Murat Demir discuss emerging market trends in Latin America.

Challenges to the sec finance status quo

Natixis’ Anthony Caserta and Saverio Costa outline the opportunities and...

Into the uncharted electronification of credit and EM financing markets

By Andy Wiblin, Chief Product Officer at GLMX

Centralized collateral management becoming a reality

Bimal Kadikar, CEO of Transcend Street Solutions

The evolution of network management

Massimiliano Notarianni, Global Head of Network Management at Societe Generale