Pundits will be posturing for some time about the President-elect’s effects on immigration, international treaties, and a range of subjects that I can’t even envision, but what about banking & finance?
Is Trump a ‘return to Glass-Steagall’ (the 1933 US version of UK ring-fencing) or a ‘let them eat what they kill’ anti-regulation man? What we do know is that he has clearly stated an ‘America first’ rather than an equal playing field or open market agenda.
So some of the big issues:
In the unlikely case that President-elect Trump supports a return to Glass-Steagall, Europe’s banks may start to count their blessings. US banks would have to choose to be retail or not and would lose a vast advantage they currently have over European banks that provide only corporate and investment banking. For example, in the USA, JPMorgan would be a less formidable competitor to Barclays and Deutsche without its Chase parts. Seems unlikely to me.
Rolling back Dodd-Frank, the 850 page banking law with perhaps 20,000 pages of related rules, seems more likely; hopefully, it will be to a more simplistic and manageable effort and not a more risk encouraging framework. Dodd-Frank’s consumer protection framework is certainly likely to be a subject the Republican Congressional majority will review. They have seen it as too Democrat and perhaps can’t resist changes which President-elect Trump might be line with. In an indirect way, this is likely to guarantee that the UK’s conduct framework will become the world standard much like the UK corporate governance framework has done. Consultants awake!
President-elect Trump’s trade and treaty pre-election statements offer some interesting guidance on international banking. I don’t recall ever hearing him discuss international services in all of his comments on North American and Asian trade relationships. US banks might find a more protectionist ‘goods’ environment has a downside to their export (and local) provision on international services. Is this an opportunity for European banks if US banks must retreat or are forced out?
Bank values in Mexico took a quick hit based on the President-elects prior comments about relationships with Mexico. Will there be buyers and sellers of Mexico’s largely foreign owned banking sector? What about overall trade financing related to imports and exports? This could certainly become more complicated if treaties change, but wait. Republicans in Congress have always been proponents of free trade agreements and they now have a majority. I’m not sure how to square the Republican’s in Congress traditional platform and the President-elect's campaign speeches. How will both houses of Congress form their positions related to President-elect Trump’s positions?
Michigan may have voted Trump (still uncertain) but its Senators and Representatives won’t support anything that hurts the automobile industry and there has been much debate about whether certain production in Mexico helps or hurts US jobs; for example, if the Mexican component had to be produced at a higher price in the US, would that make the US vehicle less competitive compared to a European import? Complex supply chains exist around the world; will they move or change? And how fast?
I think banking & finance can adapt. Post-Brexit food price increases are on the horizon for the UK, so will the new President watch and learn how this goes down with the UK population or not care, but this isn’t about banking & finance. Perhaps here it is time to recall that President Obama promised a US national healthcare solution on his first campaign and he was elected with his party controlling both houses of the US Congress; two years later a very much ‘less than perfect’ healthcare bill was approved and it's been controversial ever since. Any efforts to change trade, treaties, and banking & finance might take some time. What a complex world, and there's more to come.
Finally, if the US cuts taxes and spends on infrastructure there is no doubt the US is going to need foreign investors in US government securities. Will there be buyers? What might this do to interest rate levels? Much more to come here, too!
Peter Hahn is the Dean at The London Institute of Banking & Finance.