BY JAMES BURTON, DAILY MAIL, LONDON (TNS)
BANKING shares rose across the world yesterday on hopes that Donald Trump would ditch tough rules introduced after the financial crisis.
The 2,300-page long Dodd-Frank act was brought in to protect US consumers and outlaw the riskiest financial behavior – ensuring the crash never happened again.
During the race for the White House, the next US president repeatedly said he would repeal it. If this happens it threatens to pave the way for a return to casino banking and massive profits, making financiers even wealthier.
But it might also increase the risk of another recession, as well as tempting the City into loosening its own rules if New York became more competitive.
Last week the possibility that this law may be repealed seemed to come a step closer as sources suggested the boss of Wall Street bank JP Morgan, Jamie Dimon, had been offered the job of Trump’s treasury secretary.
For many, Dimon, whose nickname is the King of Wall Street, is the archetypal investment banker who favors low regulation.
The speculation sent Barclays shares up 4.2pc, or 8.2p, to 201.1p, while Lloyds was up 3.7pc, or 2.12p, at 59.63p.
Investors even ploughed into stricken taxpayer-backed lender Royal Bank of Scotland, driving the NatWest owner’s share price up 5.4pc, or 10.4p, to 202.7p.
The Euro Stoxx Banks index, which tracks the Continent’s largest lenders, rose 1.5pc, and the Dow Jones US Banks Index climbed 4.7pc.
Troubled German lender Deutsche Bank jumped 5.6pc as traders hoped a rule change would allow it to dramatically improve profits. “Dodd-Frank has made it impossible for bankers to function,” Trump said in May. “It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop.”
Pressed on his plans, he said he would come “close to dismantling” it. Following through on this pledge would have huge implications for the financial order which has built up since the crisis. Dodd-Frank was the US contribution to a new global order, which has seen tougher regulators created in Britain, forced banks to abandon some practices entirely and requires them to hold far more low-risk cash to guard against going bust.
Dodd-Frank’s removal would be welcomed by many on Wall Street, lifting a huge barrier to their earning power. There would be serious implications for the City [London for non-Brits], which has toughened up its own rules as part of the same global effort.
“If it did happen, I could see the City of London losing a bit of business,” said veteran market commentator David Buik, of Panmure Gordon. “But I wonder how much appetite the American people have got for the shackles completely coming off.”
He said the level of public anger at British banking meant similar relaxation could not happen here.–
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