Following the 2008 financial crisis, the Obama administration enacted the Dodd-Frank Act to provide tighter regulations for the banking industry in order to prevent another meltdown. The Act was meant to protect consumers from bad investment advice by requiring banks to be more stringent in their investment and loans processes. However, critics of the act say that it hurts the economy by making it too difficult to borrow money. Now, those critics have their day as President Trump signed an executive order to begin the repeal of Dodd-Frank.
What Does This Dodd-Frank Act Repeal Mean for the Financial Industry?
So far, President Trump is following through on all of his campaign promises. But the one that could have the biggest impact on our economy is Trump’s repeal of Dodd-Frank. The act was put in place to oversee a lack of regulations under Bush and Cheney, which led to the financial collapse (and subsequent recession) of 2008. Are we headed back to the same system which got us into the 2008 mess in the first place?
The act hasn’t actually been repealed. But Trump has promised to dismantle it, using unclear wording with far reach. The Dodd-Frank Act is never actually mentioned by name, but Trump’s latest executive order lays out core principles for regulations which include empowering American investors and improving the competitiveness of American companies. The new order gives the Treasury department almost unprecedented power to “make sure existing laws align with administration goals.”
Supporters of Dodd-Frank say the law is in place to protect consumers, and that Trump is giving Wall Street a huge gift by removing their regulatory hurdled. His theory is that the removal of the act does help Wall Street, but helps consumers and businesses as well by allowing banks to lend more money more frequently to companies, who would then, in turn hire more workers.
But theory and reality are two very different things.
Dodd-Frank has been targeted by conservatives since it was signed into law in 2010. Now, with the right controlling the House and Senate, Dodd-Frank is sure to be dead. And while that may scare supporters of financial regulation, it could actually do exactly what Trump proposes. Banks are in the business of lending. The interest on loans brings in billions for the financial institutions. And with fewer regulations, that lending power goes up significantly. If banks are more willing to loan money, companies which otherwise wouldn’t be able to get loans would be far more likely to now secure capital and launch their big idea.
Watch the latest news from Bloomberg regarding the repeal of the Dodd-frank Act:
Regardless of what results from the repeal, investors would be wise to bet on financials. Giants such as Wells Fargo & Co. (WFC), Bank of America (BAC), and JPMorgan Chase & co (JPM) are all UP on the news, and will continue to rise as a result.
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