The US financial landscape stands on the brink of a major transformation – and potential collapse – as Donald Trump prepares to roll back some of the most significant banking regulations enacted in the aftermath of the 2008 financial crisis. Of course, Trump being Trump it goes against any sense of justice for most ordinary citizens – and will merely serve to line the pockets of the rich.
Trump: slashing financial regulation
As the Guardian reported:
US watchdogs are reportedly planning to slash capital rules for banks designed to prevent another 2008-style crash, as Donald Trump’s deregulation drive opens the door to the biggest rollback of post-crisis protections in more than a decade.
The move follows heavy lobbying by the banking industry, with lenders such as JP Morgan and Goldman Sachs having long complained that competition and lending have been hindered by burdensome rules governing the assets they must hold versus their liabilities.
Regulators are expected to put forward the proposals this summer, aimed at cutting the supplementary leverage ratio that requires big banks to hold high-quality capital against risky assets including loans and derivatives
Central to Trump’s proposed changes is a proposed reduction in capital requirements, particularly focusing on the supplementary leverage ratio—a key measure designed to ensure banks maintain adequate buffers against losses.
The administration’s drive to ease these restrictions aims primarily to boost liquidity within the banking sector. Proponents argue that reducing the regulatory burden on banks will enable increased lending and economic growth.
However, this approach has been met with significant criticism from experts and observers.
What the hell just happened?
People are warning that Trump’s drive for deregulation could amplify systemic risks within an already volatile financial system.
Detractors of the policy highlight the dangers of encouraging potentially reckless practices reminiscent of those that contributed to the financial meltdown more than a decade ago.
Critics contend that looser regulations could embolden banks to take on excessive risk, ultimately leaving ordinary people vulnerable to the fallout of another crisis. These concerns are particularly poignant given the historical precedent where such deregulation had devastating impacts on the broader economy and the lives of countless individuals.
Adding complexity to the unfolding financial landscape is the use of Synthetic Risk Transfers (SRTs), practices employed by banks to shift credit risks onto external investors.
By leveraging SRTs, financial institutions can reduce their apparent risk exposure, enabling them to present a healthier balance sheet while effectively transferring the underlying risk elsewhere. Analysts warn that this tactic may mask the true stability of banks, potentially obscuring vulnerabilities that could have far-reaching economic consequences.
This financial recalibration in the US contrasts markedly with developments elsewhere.
Trump could be laying the groundwork for another global shock
The international reverberations of the Trump administration’s policies are significant. European actors have been actively engaging to influence US decisions, aware that shifts in American financial regulation can have profound impacts across transatlantic economic ties. These dynamics underscore the interconnected nature of global finance and the risks posed when key players adopt divergent strategies in overseeing their banking systems.
Overall, as US congresswoman Pramila Jayapal said on X:
After the Great Recession — which cost millions of jobs and destroyed countless lives — our government put regulations in place to make sure it never happened again.
Now, Trump is getting rid of those rules. What could possibly go wrong?
Ultimately, the rollback of regulatory measures by the Trump administration signals a fundamental shift in America’s approach to financial oversight—one that prioritises deregulation in the name of economic stimulus but which raises pressing questions about the resilience and integrity of the banking sector moving forward.
We’ve been here before in the US, when the Clinton administration rolled back the Glass-Steagall Act in 1999 – a move which directly led to the 2008 financial crash. Trump now looks set to do similar, but of course it won’t be him and his ilk who are affected when it all goes wrong.
Featured image via the Canary
