Trump succeeds in rolling back post-Lehman Brothers financial regulation

JUSTIN LANE

A file photograph showing a view of the Lehman Brothers world headquarters in New York City, New York, USA, 12 June 2008.

Trump succeeds in rolling back post-Lehman Brothers financial regulation


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The U.S. House of Representatives moved to ease banking regulation introduced in the aftermath of the collapse of Lehman Brothers, delivering President Donald Trump with a major legislative victory.

With 258 in favour of President Trump’s proposals and 159 against, the 2010 Dodd-Frank Act has been severed with bipartisan consensus. 17 Democratic representatives were convinced by the President’s argument that deregulation will boost growth.

New regulation reduces the buffer capital that lenders must keep against their loans and investment. Moreover, there will be less regulatory oversight for lenders with less than a $250bn capitalization; the previous threshold was $50bn. Finally, there will be less scope for regulatory oversight for trading that is below the $10bn threshold.

The bill had passed the Senate floor in March.

Advocates of this deregulation wave argue that smaller banks did not contribute to the financial crisis and it is not right they should assume the current cost of regulatory compliance.

However, the House of Representatives did not deliver as much as President Trump promised.

Most prominently, the President failed to dismantle the Consumer Financial Protection Bureau. In addition, key so-called Volker rule regulation remains in place, including a provision that retail and investment banking remain segregated, while lenders are not allowed to bet their own capital. Finally, so-called “systemic banks” will still need to maintain buffer capital thresholds in each market they operate.

Democratic Senator Elizabeth Warren warned that loosening of financial regulation and will increase systemic volatility.  Critics may be appeased as the bill offers more favourable treatment to municipal bonds, which could boost infrastructural investment in line with Trump’s campaign promises.

Bank bailouts in the aftermath of the subprime mortgage financial meltdown cost the US taxpayer approximately $700bn. In the first quarter of 2018, US lenders saw their year-on-year profits rise by 27,5%.

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