U.S. President Donald Trump has vowed to roll back Obama enacted laws that restrict the U.S. financial services sector from making risky trades.
CGTN’s Karina Huber reports.
In May, Trump signed a bill that exempts small and medium-sized banks from the Dodd-Frank law passed after the global financial crisis. He also revoked a rule aimed at protecting consumers from discrimination by auto lenders. Now, he wants to water down the so-called Volcker Rule.
When the Dodd-Frank bill was signed in 2010 in the wake of the global financial crisis, it was meant to prevent Wall Street from taking excessive risks. A key tenet was the so-called “Volcker Rule,” which limits proprietary trading—banks using depositors’ money to make speculative investments. The former head of the U.S. Federal Reserve, Paul Volcker, believes these bets were a key factor in the collapse.
Ten years after U.S. banks received a $475 billion bailout from U.S. taxpayers, the Trump administration now wants to water down the Volcker Rule. The six largest banks in the U.S. have lobbied for change. They said the rule is too complex and want it simplified. Proposed changes include giving the banks more leeway in determining what constitutes a proprietary trade. The burden of proof will also shift from the banks to the Federal Reserve.
Regulators say the initial intent of the rule will remain intact but consumer advocates are alarmed. Columbia University law professor John Coffee said the changes are not worrisome if banks comply with the new rules and regulators enforce them. “If there was strong verification. If there really is monitoring of compliance then I don’t think this will be something that opens us up to a new financial crisis,” Coffee said.
He said the bigger concern is the anti-regulatory mood in the White House and the Federal Reserve’s proposal to chip away at the reviews of a bank’s strength called “stress tests.”
“All those stress tests did a great deal of good. They told us where there were real weaknesses. Once you do a lot less stress testing, I think we’ll see greater risky activities occurring in many banks,” Coffee added.
The U.S. public has 60 days to comment on the proposed changes to the Volcker Rule. In that time, a lot can change.