What is going on with this stock market? Everything is up. One explanation remains: regulations are going to get trimmed down to size. That cuts red tape, speeds business and increases profit margins. It’s a wonder why the SPDR Financial Select (XLF)XLF 41,83 +0,16 +0,38% is not yet beating the S&P 500.
Neil MacKinnon, an economist with VTB Capital in London, says it is unlikely that the Dodd-Frank Act will be fully repealed. As it is, the Act is all-encompassing in its coverage of the banking sector. “What is more likely is that it will be watered down or that new regulatory personnel at the various government agencies that have responsibility for regulation will be less strict in the law’s enforcement,” MacKinnon says.
This is a welcome development for investment firms who tend to see the compliance aspect a costly burden. It’s bad for some businesses down market, however, which have sprouted up to cater to those compliance issues as legal and professional services outsourcers. These firms will be the ones battling the bulge bracket banks on Capitol Hill. All but the bearish of contrarians believe that the U.S. banking system is better able to withstand financial shocks thanks to the new Basel guidelines requiring increased capital and liquidity buffers.
Last week’s resignation of Fed Governor Daniel Tarullo, effective on April 5, is note worthy for anyone thinking of buying U.S. banking stocks. Tarullo was in charge of financial regulation at the Federal Reserve. His departure helps Trump’s banking sector regulation roll-back.