Cancellation of Dodd-Frank by President Trump and its implications
President Donald Trump signed a decree seeks to examine the regulations enacted by the Obama administration after the financial crisis while undermining regulatory relief.
Consequently, the growth potential of the financial system may benefit further improvement. At the same time, Trump dismissed the customers ‘fiduciary duty’ application while providing pension advice.
In response, the finance sector recorded an increase of 2% in trading on Friday, significantly higher from the other sectors included in the Index, while continuing to show a surplus yield from Trump was elected president, with an increase of 19% versus 8% of that produced the S&P500
In general, the signing is the direct approach of the president-elect, while he was working to implement campaign promises to remove regulatory barriers and targeting in the American citizen.
However, it is important to note that the act returns to the table, some catalysts of growth that led to the financial crisis in 2008, such as swap options and derivatives, and remove some of the barriers preventing risk-taking by investment banks.
Upon his election to the post of Trump November, noted that the financial sector is expected to benefit from the promises deregulation and accelerating the projected rate hike due to an increase in inflation. Although US banks index is not cheap, with an average capital multiplier of 1.4, an improvement in consumer sentiment, a reduction in corporate tax and income taxes, the expected increase in the disposable income and the improvement in revenue funding as a result of the increase in interest rates support further investment in the sector.
The financial sector is watched as an indicator of economic growth. The more business activity there is, the more loans are taken out, and the more money banks can make.
“It’s typically healthy that the financials are leading. It’s suggesting the economy is in good shape. It’s not something we’ve had” over the last few years, said Bruce Bittles, chief investment strategist at Baird.
The acting US president, Donald Trump, signed on Friday an additional regulation compatible with his promises during the campaign, in which he will begin the gradual abolition of laws Dodd-frank.
The law was enacted in 2010 by the Obama administration, following the 2008 financial crisis and its implications, and includes 243 rules which are divided into 16 parts.
The declared goal of the regulations would “require the financial system to be accountable, increase transparency, prevent a situation that a financial institution is ‘too big to fail’, to protect the American taxpayer by cessation rescue for failing banks by the government, to protect consumers from abusive practices employed by banks, and other purposes”.
The law has led to an increase in banks’ reserve ratios and improved the credit quality, but while reducing the potential for growth of large institutions, by restricting investment in derivatives, options, swaps and hedge funds.
A large part of Trump’s plans for the financial system, in accordance with the regulation that signed, based on the regulation raised by the republican majority in congress in June 2016.
According to the Republicans, Dodd-frank failed to fulfill the expectations of it, when big banks are stronger than ever, the growth rate of the financial system lower than expected, while American citizens stand in front of the financial system is weak compared to pre-crisis situation.
The proposal focuses on the impending deregulation of the growth and increases the responsibility of managers and legislators in the case of the collapse of a financial institution.
At the same time, Trump dismissed the “Trust Law” application in 180 days. The law, initiated by the Obama administration, sought to ensure that US pension marketers place the interest of the client above all business interests and thereby prevented a relatively complex product offerings.
According to the president’s economic adviser, Gary Cohen, a former chief operating officer of Goldman Sachs, the law limited the possibilities of the customer, if they did not match the definition of the risk of administration.
In view of the credit growth, net interest income, operating expense structure and quality of credit portfolios that show consistent improvement. Easing regulation of the financial system, improving consumer sentiment, expected reduction of corporate and income taxes, disposable income and the improvement in revenue funding as a result of the increase in interest rates, supports in investment in the financial sector to the near future.
The main related ETF’s are: VFH, XLF, KBE