President-elect Trump and his supporters have publicly called for the overhaul of Dodd-Frank and related regulations enacted since the financial crisis. Meanwhile, Democrats have been steadfast in maintaining one of the major accomplishments of the Obama presidency. We have watched the incoming administration’s statements and actions with interest, along with the hardened views of congressional leaders and the complex myriad of financial regulations that are in place or still to come. As a result, we have been cautious to publish our specific views or predictions – the safest prediction is obviously to say things are unpredictable.
However, after much debate and discussion with clients and contacts in Washington, we have decided to follow the advice of Peter Thiel and take the incoming Trump administration more seriously than literally. Assuming this thesis holds in the new administration, then our view is that the biggest bang for the buck is for the administration to focus on changing the regulators rather than the regulations (that are already in place).
While Dodd-Frank and its related rulemakings have been difficult and painful to adopt and implement, the medicine has largely already been taken, especially by the largest US financial institutions. Despite the pain (or perhaps because of it), the global competitiveness of the US financial services sector has never been stronger because the rest of the world – particularly Europe’s banks – have been slow to address the necessary balance sheet, structural, and business model transformations to compete in the post-crisis regulatory world.
Therefore, the real issues for most globally active US banks subject to Dodd-Frank are the ever increasing demands of regulators, very narrow or non-transparent interpretations of complex and at times contradictory provisions, and punitive enforcement actions. These areas are where most of the "excess" pain resides, and where the Trump Administration can impact financial regulation the most.
Given this backdrop, and with the caveat that "unpredictable" is the norm, we set forth ten predictions.