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Financial Services

Trump has signaled an appetite for decreased regulations, higher interest rates, and increased protectionism that will undoubtedly affect the markets.

Trump has signaled an appetite for decreased regulations, higher interest rates, and increased protectionism that will undoubtedly affect the markets.

President-elect Trump did not unveil a detailed policy proposal outlining his relevant financial services positions during the campaign. Consequently, the financial services industry faces a measure of uncertainty in the months ahead. Even though Trump will assume office with a Republican-controlled Congress, diehard progressive Democrats such as Senators Elizabeth Warren (D-MA), Bernie Sanders (D-VT), and Sherrod Brown (D-OH) will use the filibuster rule to fight GOP efforts at every turn to repeal or weaken consumer-focused laws.

Dodd-Frank

Trump has repeatedly stated his intention to fully repeal or roll back the Dodd–Frank Wall Street Reform and Consumer Protection Act enacted in response to the 2008 financial crisis. While never specifically referencing out the 2010 reform law by name, Trump’s economic plan includes a frank promise to “reduce anti-growth regulations.” Given that Speaker Ryan unveiled his own proposal to scale back Dodd-Frank, which is reviled by many Republicans, expect quick action to weaken its key provisions at minimum. Areas of focus for the new administration are likely to include restructuring the Consumer Financial Protection Bureau to replace its single director with a bipartisan commission and to make its appropriation subject to Congressional approval; raising the threshold for tougher bank regulation above the current $50 Billion asset level, and requiring all financial regulatory agencies to abide by heightened cost-benefit analysis, which critics have argued are designed to slow or halt the rule-writing process.

DOL Fiduciary Rule

Trump is likely to target the recently enacted Department of Labor (DOL) fiduciary rule, which has been criticized as government overreach that penalizes middle- and lower-income savers, small businesses and investment advisors. Efforts from Representative Jeb Hensarling (R-TX), chairman of the House Financial Services Committee would suggest that, despite Trump’s populist and anti-Wall Street tenor on the campaign trail, we may see a swift move to halt enactment of the fiduciary rule before it goes into effect in April.

Glass-Steagall Reform

In late October, President-elect Trump expressed his desire for the implementation of a “21st century” version of the 1933 Glass-Steagall. The law, which mandated the separation between commercial and investment banking, was repealed under President Clinton in 1999. This view breaks with traditional Republican orthodoxy and is primarily supported by Democrats, like Senator Warren (D-MA).

Carried interest

The president-elect has called for an end to the preferential tax treatment of “carried interest—a position he actually shares with Secretary Clinton. In anticipation of increased scrutiny on carried interest, the private equity industry’s trade group renamed itself the “American Investment Council” and even hired former Speaker of the House John Boehner’s chief of staff, Mike Sommers, to serve as its president and CEO. Although Trump favors eliminating carried interest and taxing it as ordinary income, it’s unclear if hedge-fund private equity and venture capital fund managers would ultimately end up paying higher personal income taxes under his administration, or if private equity funds’ structures would change significantly given that his tax plan also calls for narrowing the gap between capital gains and income taxes.