Alright everybody, get your party hats and gather up the confetti. Trump is tooting his horn again about bank regulations, so everyone get on Twitter for the updates. In recent news there has been talk about the break up and deregulation of public enemy number one, the Wall Street banks. But before we get there here’s a little history lesson on banks.
In 1933 the Glass-Steagall Act was passed to separate consumer and investment banks. Then in 1999 the Glass-Steagall Act was repealed by the Gramm–Leach–Bliley Act that deregulated the banking system. The Gramm-Leach-Bliley Act allowed consumer banks and investment banks to coincide and weaken other government controlling regulating industries from monitoring banks. The deregulation and the ease of lending along with low interest rates resulted in a boom in the economy. All those were contributing factors to the 2008 financial crisis. After the crisis more legislation passed called the Dodd-Frank which put more restrictions on banks following the crisis. Many people argue part of the reason for the crash was the deregulation of banks, which is why there is so much debate and talk about the possibility of putting more regulations on banks; and possibly separating consumer and investment banks once again.
Trump is a lot of talk when it comes to matters such as this. Talking about the possibility of separating banks into commercial and investment banks, would drastically hurt big banks who offer both banking and brokerage services. Trump has been talking a lot about how he wants to have stronger restriction on banks that will not hurt a bank’s ability to loan money. Makes sense! Restrict the banks while not preventing them from giving out loans that could spark future growth. The majority of people would agree this is a great idea, but is it feasible?
How do you regulate a bank without restricting their ability to loan? The lack of regulations Pre-Financial crisis made bank loans easy for borrowers of all risk levels. While post financial crisis regulations, with the passing of the Dodd-Frank has made it difficult for even qualified low risk borrows to receive a loan. Over the past two decades we have seen two extreme ends of too easy and too hard to receive loans from the bank. It is now legislators jobs to alleviate some of the restrictions on bank loans. Therefore it is possible to put regulations on banks and still be able to give out loans to qualified borrowers. Now it comes down to the goldilocks principle of finding the amount of regulation that is just right.
I think the reality is, Trump wants the public to believe he is reining in the big bad banks while really loosening some of the ridiculous parts of Dodd-Frank which was legislation crafted like a witch hunt. Trump is a businessman first and will use that background to allow the banks to contribute to the “Make America Great Again” campaign.