Is 2008 far enough in our rear-view that we’ve already forgotten the same mistakes that brought the financial industry-and U.S. economy-to the brink of collapse? Evidently, it is for banks and policymakers. You have probably been hearing a lot of talk about impending “reviews” of current financial regulation measures; the very regulations put in place immediately following the aftermath of the 2008 collapse; the very measures that are meant to ensure that kind of thing doesn’t happen anymore. However, these calls for review signal a clear intention for some of a desire for wide-scale financial deregulation.

The Push for Financial Deregulation

Financial institutions have claimed that regulation measures have been retaliatory and have largely resulted in stifling growth and ability to offer competitive services and prices. With the introduction of the Trump Administration, financial stocks soared on optimism of a businessman in the White House. The president and other policymakers have repeatedly voice dissatisfaction with current regulatory measures. Notably, the Dodd-Frank law, which provides much of the overarching regulation for banking and finance, has been seen as headed for the chopping block. Reuters reports that in June, House Republicans voted to replace Dodd-Frank.

In a World Without Financial Regulation

The risks of widespread financial deregulation are great. The fallout of 2007-2009 were universal, and effectively ended the popular “too big to fail” concept. Entire companies were brought down, not to mention the homes and savings of thousands of people and families. You probably know someone who experienced financial devastation. Dodd-Frank and other regulatory measures were put in place to ensure that devastation of the magnitude never occur again. While a review of some measures may be warranted, massive financial deregulation is not. In fact, banking experts are warning that a move like that could have dire consequences. Vice Federal Reserve Chair, Stanley Fischer, recently stated that the decision to roll back key elements of Dodd-Frank were extremely short-sighted. He warned that a reversal could be taking us in a very dangerous direction. Regardless of political preference, nobody wants a return to the dark days of 2008. Any “reviews” of existing regulations should be met with apprehension and should be given full deliberation.

Resources

You can read more about the Fed’s concern over deregulation here. Curious about what potential rollbacks could mean for your retirement savings or investments? Give us a call.

Last week, President Trump ordered a review of major banking regulations put in place following the 2008 financial crisis, largely comprising Dodd-Frank regulations. President Trump has made clear that rollbacks are a main objective for these reviews. Though the executive order only calls for a review, the Trump administration aims to make major cuts to banking regulations, largely affecting Dodd-Frank’s enforcement measures: Volcker Rule and the Consumer Financial Protection Bureau (CFPB). Here is an overview of the two main components of the Dodd-Frank banking regulations and what it means if they are cut:

The Volcker Rule

A big part of Dodd-Frank, the Volcker Rule raises capital requirements for banks and limits trading abilities. Banks are restricted from certain investment activities using their own accounts and also from retaining control over covered funds. The Volcker Rule acts to prevent speculative trading. If cut, big banks could be free to make unstable investment decisions.

Consumer Financial Protection Bureau

Another major component of Dodd-Frank, the CFPB was established by congress as a means of hands-on banking regulation and enforcement. The CFPB acts to protect consumers from aggressive and predatory investment banking and trading practices. In addition to taking legal action against unfair and deceptive practices, the CFPB also serves as an educational resources for consumers and investors. If cut, banking regulation could once again become largely decentralized and unable to accurately oversee banking practices.

Effects

Bankers and lenders laud President Trump’s decision to review current financial regulation under Dodd-Frank. Wall Street saw a noticeable bump in banking stock prices following Friday’s announcement. Despite lender and broker-dealer optimism, many consumers and regulators worry that loosened regulations will lead to a financial relapse and market crash.

Educational Resources

• See this report from Reuters for more info on President Trumps order for regulatory review
• Find out more about the CFPB by visiting their website
• Get more consumer news and tips by checking out our past blogs

Big banks on Wall Street had been left unchecked for too long and the introduction of sub-prime lending tactics sealed the fate of U.S. financial stability. A culture of smoke-and-mirrors misleading consumers, coupled with a dire lack of regulatory oversight allowed big banks to run rampant. Years of bad banking tactics caught up with the U.S. economy in 2008, resulting in the worst economic recession seen in the country since the “Great Depression” of the 1930s. The effects were devastating.

The Effect

The fall-out left the country reeling. As Wall Street’s house-of-cards collapsed, consumers and legislatures were left scrambling to figure out what happened. Businesses folded, people lost jobs and housing, investments were liquidated and stocks bottomed out. As the dust began to settle and the economy eventually showed signs of re-righting itself, legislators gave the accountable parties a stern talking to and, for their part, big banks promised to change. And it seemed that way for a while…

Business as Usual for Big Banks

The recent scandal involving Wells Fargo’s accounts fraud has demanded a refreshed scrutiny of big banking ethics and practices and what we are finding is troubling. It seems that no lesson has been learned at all and big banks continue to be a breeding ground for greed and deceit. Wells Fargo is just the latest of the nation’s largest banks cultivating a pervasive, toxic culture. A report in Reuters shows that recently, in addition to illegal financial practices, banks also use coercion and bribery as regular means of business.

Broken Promises

Clearly, big banks have not learned the harsh lessons of the 2008 financial crisis. They continue to take advantage of consumers by taking money out of people’s pockets to line their own. Don’t be intimidated or mislead by big banks. If you believe that you have been victimized by big banking tactics or have suffered a financial loss at the hands of investment banks, contact Savage Villoch, PLLC today and get the tools to fight back.