- Mark Wallheiser/Getty Images
Donald Trump isn’t shy to tout his distaste of regulations.
Since he kicked off his presidential campaign in June 2015, Trump has derided Obama-era financial regulations as “bad for business” and responsible for America’s slow-growing economy.
He even promised to eliminate two regulations for every one enacted during his tenure as president.
Most Wall Streeters view Trump’s anti-regulatory stance as a tailwind for the financial services industry.
Octavio Marenzi is the CEO of Opimas, a management consultancy firm focused on capital markets. He told Business Insider that Trump’s victory was an early Christmas present for banks and other financial firms.
“His win signaled that most of the financial regulations and requirements on the books today will – for the most part – be scaled back to what they were before the financial crisis,” Marenzi said.
“This isn’t going to necessarily translate into a golden age for banks, but it will be a normalization of the business environment. They’ve been battered by regulations and now we are finally going to see a more healthy environment,” he said.
“Our analysis shows that efforts to deregulate could redirect more than $25 billion in capital in the financial services industry over the course of the next 18-24 months,” Opimas cofounder Medy Agami added.
Business Insider breaks down the four regulatory actions Opimas think Trump will take and the degree to which they will benefit Wall Street:
1. Elimination of the Volcker Rule – $6 billion
- REUTERS/Mike Segar
Marenzi and Agami said that the Volcker Rule will likely be the first regulation on the chopping block now that Trump is officially president. That’s because all Trump would have to do, essentially, is tell regulators to stop enforcing it.
The rule, which is the namesake of former Federal Reserve Chairman Paul Volcker, has been the bain of American bankers since its inception in 2013 when it was implemented as means to prevent future financial crises.
According to Marenzi and Agami, repealing the Volcker Rule will save investment banks approximately $6 billion.
“The implications will be significant for large investment banks since dropping the rule would generate additional revenue and profitability streams,” they said.
“There is also significant evidence that repealing The Volcker Rule will increase liquidity in various asset classes-fixed income, equities, commodities, foreign government debt, etc.-by enabling dealers to hold inventory that has long-term demand from clients that would otherwise not be allowed,” they added.
Steven Mnuchin, Trump’s Treasury Secretary nominee, said in a confirmation hearing that he supports the Volcker rule, but “there needs to be proper definitions around the Volcker rule so that banks can understand exactly what they can do and what they can’t do, and that they can provide the necessary function of liquidity in customer markets.”
He cited a paper from Federal Reserve staff released in December that found that the Volcker rule had a negative effect on corporate-bond liquidity, or the ease with which buyers and sellers can find each other.
2. Reductions in capital and liquidity requirements – $19.84 billion
- John Raoux/AP
According to Marenzi and Agami, significant reductions in capital and liquidity requirements, which were enacted in order to prevent the type of risky lending that some say was the impetus of the housing crisis, will free up banks to ramp up their lending.
“It will free up nearly $20 billion in unproductive capital over the next 18-24 months that banks are hoarding and could redirect to other areas,” they wrote.
“These regulations will be the most difficult to scale back since they are globally implemented and compelled banks to build myriad models and retain armies of risk and compliance teams,” they added.
Mnuchin previouslytold CNBC that the new administration planned to “strip back parts of Dodd-Frank that prevent banks from lending.”
3. Say goodbye to the Consumer Financial Protection Bureau – $1.4 billion
The five year old watch dog agency could potentially meet its demise during the first term of the Trump administration, according to Marenzi and Agami. And that’s great news for banks.
“The elimination of or serious reduction in CFPB regulations will mean a potential savings of nearly $1.4 billion for banks,” they said.
Republican lawmakers have been pushing for the removal of Richard Cordray, director at the Consumer Financial Protection Bureau.
4. Too Big to Fail will be revisited – $840 million
- Daniel Goodman / Business Insider
The Republic sweep of Congress and the presidency likely means the Financial Stability Oversight Council’s ability to deem certain financial institutions as “too big to fail” will be revisited.
“The knock-on effect of deregulation of the Financial Stability Oversight Council’s rules and mandates tied to Too Big to Fail, Living Wills, derivatives and enhanced prudential standards could return an additional $840 million to institutions,” Marenzi and Agami said.
“Deregulation considerations should include the interconnectivity of the financial ecosystem and its impact on the economy, the competitiveness of large institutional players, investment in regulatory compliance and risk capabilities, capital management and some re-regulation,” they added.