CEOs will be looking forward to Donald Trump’s regulation cull, offering them breathing space following a heavy clampdown on risk-taking introduced by the Obama administration.
There are instances, however, where loosening rules could cause ripple effects that challenge businesses, particularly America’s largest and most powerful banks.
Wall Street was punished following the financial crisis via the introduction of the Dodd-Frank act, which forced them to hold more capital aside for emergencies, restrained derivatives trading and made it harder to gamble customer deposits, among other measures.
Such rules ended up hitting smaller banks much harder, since they can’t access liquidity as easily or as cheaply as their larger cousins. Community banks traditionally make more money from lending than deposits, so they’ve been more sensitive to low interest rates and don’t have the same strength in numbers to deal with new compliance burdens.
Trump’s transition team partly justified dismantling Dodd-Frank to open the market to smaller players, while lamenting that community financial institutions have disappeared rapidly in recent years.
On Thursday, Trump entertained the heads of nine community banks in the Oval Office, including Standard Bank CEO Tim Zimmerman, Bank of Bennington CEO Leslie Anderson and First Capital CEO Ken Burgess.
“Community banks play a vital role in helping create jobs by providing approximately half of all small loans to small businesses, and that’s been dwindling because the community banks have been in big trouble,” Trump told the CEOs. “We must ensure access to capital. You’ll be able to be safe. But you’ll be able to provide the jobs that we want and also create great business.”
Laurie Stewart, CEO of Sound Community Bank based in Seattle, said after the meeting that community banks played a vital role in the economy. “We were able to offer the White House a rare perspective on the challenges facing financial institutions, emphasizing the importance of tailored regulation and highlight the critical roles banks play in helping our community thrive,” Stewart said.
A resurgent community banking sector would be the last thing the likes of JPMorgan CEO Jamie Dimon, Wells Fargo CEO Tim Sloan and Bank of America CEO Brian Moynihan need, as they already come under attack from online competitors that are stealing traditional loan customers.
Goldman Sachs CEO Lloyd Blankfein and Dimon are among bankers who have urged the president not to dismantle Dodd-Frank entirely. “I think there may be some modifications that make sense. I wouldn’t want regulations to be repealed in total,” Blankfein told a conference in November.
Dimon is a key advisor to the president, in his capacity as a member of Trump’s 18-member economic advisory council and his role as chairman of lobby group Business Roundtable. So he’s certain to get a word in, too. Republican lawmakers, meanwhile, appear to be prioritizing healthcare and tax reform, meaning it could take a lot of wrangling before any repeal legislation makes its way to Trump’s desk for signing.