How will deregulating Wall Street affect me?
doug mueller, president, mueller prost cpas + business advisors
Wall Street wasn’t counting on President Donald Trump winning. Therefore, it was a surprise to some to see the market respond favorably since his election. Why is that? President Trump campaigned on deregulation in a number of sectors and lower taxes. Wall Street loves deregulation and lower taxes!
The Dodd-Frank bill came into effect as a reaction to the fiscal crisis of 2008. Many thought banks were too lenient, taking too many risks, and that some banks were too big to fail, hence the Dodd-Frank bill. What has occurred, though, is that these regulations have strangled smaller community and regional banks. So what does that mean for us as consumers? If deregulation does occur, these smaller community and regional banks will be able to compete more effectively. That’s going to be good news for consumers, especially the mortgage market.
However, there has been some talk in the Trump administration about requiring more equity in the banking system to act as a buffer against bad loans and to be able to absorb financial shocks. Going forward, we may see some regulatory relief for the smaller community and regional banks and perhaps some greater equity requirements for the larger banks. The hope is that with less regulation for smaller banks, they will be more competitive and offer better deals for consumers, resulting in more lending to people who need it.
julie gampp, vice president/investments, stifel, nicolaus & company inc., member sipc & nyse
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in an attempt to curb abuses of our financial system and protect taxpayers from future bailouts. Critics say the regulations have gone too far, burdening financial institutions with costly and largely ineffective rules. The new federal administration has promised to roll back the controversial regulations, but no details have been disclosed as to what will replace them to reduce the risks of a repeat performance.
How this affects the average consumer is primarily through interest rates, access to loans and bank fees. Since the passage of the legislation, several unintended consequences have impacted the ‘main street’ consumer. For example, low interest rates should have made borrowing easier; however, many institutions are lending less due to new capital requirements.
Small businesses depend on access to capital for growth, often provided by local community banks that have difficulty absorbing the cost of complying with the complex regulations. These costs, along with new restrictions on debit card fees paid by retailers, have essentially been passed on to the consumer. We see fewer free checking accounts and other new bank fees. Critics of the law say it has also stifled competition among banks, with very few new banks being approved, allowing the largest banks to become even more entrenched. A healthy financial system is essential to economic growth; determining how to ensure that health is where things get murky.