The Great Financial Crisis of 2008 was a story of greed. In markets where incentives lead to bad behavior, disparately affecting a great deal of society, we rely on regulatory oversight. A domino effect of decisions spanning decades resulted in a global economic disaster, but it could have been prevented with effective regulators.
New discussions in the U.S. Senate indicate a likely repeal of 2010’s controversial Dodd-Frank Act. Designed in response to the 2008 economic crisis, the Dodd-Frank Act implemented regulations on banks and lending agencies to provide greater financial stability and consumer protection. The fundamental purpose of Dodd-Frank was to increase oversight and transparency among financial institutions. However, the Dodd-Frank Act has been the target of much criticism, most notably that its imposed regulations stifle the growth of smaller institutions. As of March 2018, Senate discussions indicate an intent to lay the foundations to remove this regulation.
Following the 2016 Wells Fargo scandal in which the bank opened millions of unauthorized bank and credit card accounts to collect fees, federal regulators have worked to address and respond to the corporation’s illegal conduct. On February 2nd, 2018, the U.S. Federal Reserve imposed unprecedented restrictions against Wells Fargo & Co. when it capped the bank’s growth for 2018 such that it could not exceed the total assets owned at the end of 2017. This restriction marks a substantial departure from previous penalties issued for improper compliance. Changes in policies and procedures and this novel punishment reflect a notable shift in the national bank’s expectations of corporate directors.
The Trump administration is delivering on its promise to deregulate America. Since taking office, numerous regulations spanning everything from energy to health care have been repealed or weakened. The financial services industry is not immune to the deregulation movement. The Trump administration is acting through appointments, executive agencies, and legislation to deregulate the financial services industry. Proponents of deregulation claim the movement is needed after Dodd-Frank and strict post-financial crisis regulation. However, in deregulating financial services, the Trump Administration—and compliance professionals—should proceed cautiously.