Oversight, not laws, will underpin Trump's deregulation

Starting next year, Washington, DC will start to walk and talk a little more like New York. On the campaign trail, US president-elect Donald Trump’s calls for financial deregulation seemed more like rhetoric than tangible policies. But within days of the election result his intentions for Wall Street became clearer: his transition team announced plans to dismantle the Dodd-Frank Act, and a gaggle of current and former bankers – including Jamie Dimon, Moelis’s Eric Cantor and ex-Goldman Sachs’ Steven Mnuchin – were being floated as potential Treasury chiefs.

Like previous attempts to roll back Dodd-Frank, Trump’s plans to pull apart the US’s package of post-crisis reforms will face big roadblocks. The Republicans’ small majority in the Senate falls short of the 60 votes needed to guarantee a bill makes it to the president.

It is not even clear whether the banks themselves want to throw out regulations for which they have restructured and spent billions of dollars on compliance and IT systems. Rather than scrapping Dodd-Frank entirely, it seems more likely that select sections will be repealed.

Mr Trump’s ability to populate regulators with those that share his deregulatory stance, however, will be a more powerful tool. He gets a big say in who is appointed to the 10 or so seats at federal watchdogs that are empty or up for renewal over the next 18 months, including chair of the Federal Reserve and the Securities and Exchange Commission (SEC). Mr Trump’s adviser on these appointments is none other than Paul Atkins, an ex-SEC commissioner known for his light-touch approach.

The international fallout from the new administration’s banking agenda is too difficult to call. The US’s push to tighten capital requirements in so-called Basel IV has put it at loggerheads with the EU, which wants a more lenient approach.

Mr Trump aligns more closely with those across the Atlantic, which has sparked speculation that the next accord could offer banks a reprieve. On the other hand, his promise to pull out of international agreements that do not benefit the US has prompted questions over its continued participation in setting global bank standards.

While less stringent oversight of US banks and tweaks to Dodd-Frank are inevitable, the US withdrawing from the Basel Committee seems inconceivable. But then again, a year ago so did the idea of Mr Trump lasting long in the Republican primaries, let alone calling the White House home.