Since the end of the presidential election, many businesses and banks have continually monitored what changes may come in the form of regulation. With a Republican-controlled White House and Congress, it will become increasingly likely that the regulatory direction in which the financial sector moved over the past five years will reverse. The Trump administration has specifically focused on changing the Dodd-Frank Act.
The Dodd-Frank Act of 2010 was created as a response to the financial crisis of
2008 and established several government agencies tasked with overseeing various portions of the financial sector. Dodd-Frank also set up many rules and regulations that would restrict the way in which banks invest. For example, the Volcker Rule limits speculative trading and eliminates proprietary trading. Furthermore, under the act, banks are required to hold higher reserve requirements and face increased standards of regulatory compliance. In early February, President Trump issued an executive order to make good on his promise to roll back Dodd-Frank. While the order does not actually repeal any portion of the act, it does call for a review of it. The review is scheduled to be completed over 120 days, during which the Secretary of the Treasury, Steve Mnuchin, is expected to meet with various agencies that oversee the enforcement of Dodd-Frank to decide which areas of the act need to be amended.
While a complete repeal of Dodd-Frank would be difficult, as amending even portions of the rule will require congressional approval, changes to the act could have a profound effect on the financial sector. With the possible removal of strict reserve requirements and decreased regulatory requirements, banks will not only generate higher profits but will also be able lend out more money, increasing revenues. As more loans are written, economic growth would be stimulated, with a growing number of businesses able to garner the capital they need for investment and more consumers able to take out loans for purchases of homes. However, as banks loan out money more easily, the risk environment changes. Without comprehensive oversight on the types of loans and investments being made, the potential for bank insolvency increases while protections for the American consumer erode. Nevertheless, here are seven industries that could be positively affected by Dodd-Frank reform.
The easing of Dodd-Frank regulations could affect many industries in a variety of ways, most notably through changes in consumer spending and the construction sector. Commercial banks are closely tied to credit card issuers, which will likely expand credit opportunities as banks become more comfortable taking on assets. This expansion of credit card issuance will directly increase the level of consumer spending, as purchases tend to increase when more individuals can open new or additional lines of credit. This is true of both discretionary and nondiscretionary items, as the majority of purchases in the United States are made on credit. Consequently, consumer electronics retailers and supermarkets and grocery stores could experience increased revenue as credit card use increases.
In the construction sector, the potential regulation changes would take a different, yet similarly beneficial path. For example, home builders typically fund their projects on credit; therefore, loosened lending standards would allow industry operators to take on larger projects with greater return potential. These projects directly employ several construction service industries to build the developments. This includes industries like painters and carpenters, who are projected to experience increased demand as higher lending rates increase home building activity.