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27 January 2017

Oliver Wyman: Implications of the Trump Administration for Financial Regulation

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The advent of the Trump Administration brings a new era for financial regulation and related legislation, with the potential for major changes in the US and globally. This paper describes the underlying forces at work and the political dynamics driving how they will interact.

How will the Trump Administration affect financial regulation? This crucial question cannot be answered definitively, since the election of a true outsider brings considerably more uncertainty than we have seen in many years. However, an appropriate analytical framework will allow us to form initial hypotheses about what actions are nearly certain, what are fairly likely, and what are improbable or even impossible. Further, it can focus us on the key questions to bear in mind as events unfold. This Point of View presents Oliver Wyman's own personal views of the key considerations and how they may play out in the next few years, which the author hopes will help readers to form their own points of view.  [...]


The very short version of Oliver Wyman's current views is:

• We will see a rollback of some financial regulation, although not nearly as much as advertised.

• Community and regional banks will get much of what they wish for.

• The picture will be more mixed for the largest banks, which remain unpopular.

• Insurers will see a lessened federal role.

• Asset managers may see less effect from global policy concerns on “fire sale” risk.

• The DOL Fiduciary Rule will be rolled back, but some rule may take its place.

• Senate Democrats will be able to block the big legislative initiatives, such as the Republican promise to repeal Dodd-Frank. 

• The most significant changes will come from new Trump regulatory appointees.

• The Volcker Rule may remain, protected by Senate Democrats, but regulators will simplify and loosen its application.

• There is a real risk for the big banks that leverage ratios will be forced higher.

• There is even a chance that “Glass-Steagall” returns in full force, possibly in a form that is really “narrow banking” rather than the old Glass-Steagall.

• The author's guess is that the “Congressional wing” of the Republican party will be in the driver’s seat on key issues, led by Jeb Hensarling. Although Oliver Wyman has distinct views on the most likely path, based on ten years as a policy analyst in Washington, mostly at the Brookings Institution, and two decades before that as a financial institutions investment banker, it is critical to bear in mind that there is a truly unusual degree of uncertainty associated with the outsider status of the President-elect. He has only a very short record of detailed views on public policy and we have never seen him govern. Further, his approach is intentionally different from conventional politicians and we do not know how that will play out. 

Full paper

© Oliver Wyman

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