Trump Slashes Regulations to Help Banks and High Tech Companies
The Trump administration is making good on its promises to reduce regulation. According to a new executive order, federal agencies will begin reviewing the Dodd-Frank reforms put into place following the financial crisis that began in 2007. Another executive order took a broader swipe at government oversight, mandating that two regulatory requirements be removed for every new one that is put on the books. New guidelines have also removed the requirement that financial advisors work in the best interest of their clients. Finally, rumors are circulating that Trump plans to drop restrictions on the use of conflict minerals in response to requests from business owners.
The Story Behind Dodd-Frank
The Dodd-Frank Wall Street Reform and Consumer Protection Act, generally referred to as Dodd-Frank, was signed by President Obama, and aims to protect American citizens from risky investments that could require additional bank bailouts. One of the most important provisions is that the Financial Stability Oversight Council, headed by the Secretary of the Treasury, can determine if a bank is too big for its investments to be protected by government guarantees. In that case, the council can order the bank to break up into a number of smaller institutions to reduce risk. Another section of Dodd-Frank, the Volcker rule, prohibits banks and other financial institutions from participating in operations that are driven purely by profit.
Dodd-Frank Forced Lenders to Explain Complicated Legal Documents
Another goal for Dodd-Frank was to reduce the amount of misleading marketing aimed at consumers. The 2007 recession began when a number of homeowners began defaulting on their mortgages. Many of these individuals had received subprime loans which had unfavorable terms and conditions. The banks were counting on continuing growth of home prices to allow these borrowers to refinance for better rates. However, home prices ended up stagnating, and some people eventually owed more than their homes were worth, making it worthwhile to return the homes to the banks, who were unable to sell off the properties due to the soft real estate market. Dodd-Frank forced lenders to explain the potential risks of their mortgage products in simplified English to reduce the chance that debtors would take risks they didn’t fully understand.
Banks Argue Over How to Best Serve Clients
President Trump has sided with critics of the Act, who state that the reforms were unnecessary. The argument is that many of the actions taken by the banks which led to the economic collapse were already illegal, while the new requirements boost costs to the banks which actually make it harder for people who need loans to receive them. Trump also wants to drop an investment standard which required all transactions performed by financial investors to be in the best interests of their clients. Interestingly, several banks have decided to continue this standard despite Trump’s stance, and some financial analysts are saying this is probably the best option, resulting in reduced compliance costs on the one hand, and more business for banks willing to promote this standard to clients.
Wholesale Regulations Cuts Await Legal Challenges
The executive order regarding cutting regulations is facing its first court challenges, as lawsuits filed in the U.S. District Court allege that the order violates the Administrative Procedure Act. The executive order counts only costs of new regulations when seeking to maintain a net zero balance with existing law. Any non-financial benefits of new policies are being overlooked. The Trump administration advised noted that affected agencies fell within the budget scope of the Office of Management and Budget. That office could deem particular regulations as necessary to the country’s welfare.
Conflict Minerals Could Go Back on the Market
Trump’s hands off foreign policy comes into play with a leaked potential executive order regarding conflict minerals. These products, notably tin, gold, tungsten, and tantalum, or frequently mined by armed militias operating out of the African Congo. The sale of these minerals finances the civil wars in the region. It also encourages forced labor to dig up the minerals. In response, America required declarations regarding materials sourced from the Congo. Many businesses, such as Intel, found the discovery process burdensome. Trump is considering suspending these rules for two years. This should be enough time to see the impact on companies in the high tech industry.
How Slashing Regulations Affects Trading
Repealing the Dodd-Frank Act will cut banking industry costs. Additionally, financial investors may be able to push more products onto clients, leading to larger profits. Look for the Dow Index to go up, along with specific bank and investing stocks.
Cutting regulations based on cost alone could impact faith in the United States negatively. This may occur even as it makes it less costly to do business. The USD could continue its fall if Trump removes major safeguards. However, stocks for companies dealing in highly regulated commodities like oil should see a bump.
High tech companies will benefit if conflict minerals become more available. Intel operates a major factory which uses many of these materials. Trump will be looking for credit if more factories stay in America thanks to the lowered costs. Expenses for computer companies like IBM will go down, and share prices will go up.