House Votes to Gut Dodd-Frank

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The House voted 233 to 186 today for a sweeping rewrite of the rules governing Wall Street, an opening Republican bid to encourage economic growth by loosening regulation of the financial sector.

The House bill would unwind major parts of Dodd-Frank by relieving healthy banks of some regulatory requirements and forcing failing firms through bankruptcy rather than a liquidation process spearheaded by the regulators. It would subject new financial rules to cost-benefit analysis, boost penalties for financial wrongdoers, and repeal the Volcker rule restricting banks from speculative trading. Supporters of the plan say scrapping what they view as onerous regulatory requirements will ultimately help smaller businesses, allowing them to grow and create jobs.

Good news for finance careers? Bad for the US?

Link to WSJ article

Comments (46)

Jun 8, 2017

Lol this will just make getting into IB more competitive because they'll keep headcount the same but increase compensation. Sorry bro

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Jun 8, 2017

So good news for those who are already in, probably bad news for those trying to break in

Best Response
Jun 8, 2017

Ok what you're actually missing from this repeal is the effect Dodd-Frank had on despositories. Dodd-Frank requires strict capital requirements for any bank that falls even remotely under the category of a depository in the FDIC's eyes. And because of this, smaller bank's have suffered for the past 8-9 years. So now all of the smaller banks (small banks are probably the biggest contributor to community and metropolitan growth and development) will actually be able to run like a normal organization without having to worry about the costs of strict compliance. This is probably one of the greatest regulatory overhauls in recent history, and it's going to spur major economic growth. And also, Dodd-Frank was very poorly written and all inclusive. It literally borderline infringed upon the rights of U.S. banks, so thank god reform is happening.

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Jun 8, 2017

One other point I want to add. Even though Volcker is going to be trashed, banks won't prop trade. Shareholders as well as management in any respectable bank are too risk averse to even consider allocating capital to a prop segment. No one actually knows why The Volcker Rule restricted prop trading, because speculative trading was in no way shape or form the cause of the financial collapse (This was such an ignorant piece of legislation honestly).

Jun 12, 2017

The Volcker Rule existed because there was an obvious conflict of interest between certain firms (mainly Lehman) prop trading in certain asset classes (MBSs) and the interests of their shareholders. Banks with deep B/Ss could also do serious damage to certain asset class (again, Lehman). Most banks still won't touch it but look for places like GS/BAML/Citi to take part.

Jun 13, 2017

I can't speak for what banks will do, but it's possible Volcker rule goes away. The Financial CHOICE Act has passed committee in the house and it includes removing the Volcker Rule. Trump has had "positive" meetings with Jeb Hensarling (chair of the Finacial Services Committee and sponsor of the bill) and has stated he wants to drastically change Dodd Frank.

The problem is senate filibustering rules. The Republicans would need to pick up 8 votes to overcome a filibuster. This is where it gets interesting. Senate Minority Leader Chuck Schumer from NY has tended to be friendly to Wall Street but stated the dems would easily stop a Dodd Frank repeal. My guess, however, is that Schumer is pandering to the Bernie-Warren faction of the democratic party to cement his leadership. Yet Schumer is a deft political tactician and decided centrist. I think the senate will probably amend the bill and send it back to the house. Chances are those amendments will include nixing the part about completely undoing Volcker and add something Glass-Steagalish.

I think changes to Volcker are needed though for the sake of clarity and economic growth. So if a financial bill passes I would expect at least some modification, which would probably be positive for the financial industry.

Jun 13, 2017

Problem is that Trump has said that he's a fan of the Volcker rule... Go figure.

Jun 13, 2017

True, actually when you google the subject, you will find 2 articles from Bloomberg, one last year that suggests he's with Volcker, one recently that suggests he's against it.

He's unpredictable.

Jun 13, 2017

I don't think he'll do anything about it. Wall Street reform is probably the least of his priorities. And even if the Vlcker rule goes, banks aren't just going to resume prop trading immediately.

Jun 9, 2017

Exactly what's needed, but I don't know how it passes the Senate. Need some Democrats to actually reasonably consider the unintended consequences of Dodd-Frank. Getting the liberal Democrats to rationally consider anything in the era of Trump is unlikely. They are stewing in their own hatred for Trump in such a powerful way that it makes my utter contempt for Obama look friendly.

Jun 9, 2017

Yah they are idiots, and I don't think they'd pass it. Plus, most of them don't know how the banking system works and all have the same self righteous "Lets fuck things up for Wall Street" mentality. It's stupid that legislation can be passed or destroyed by a group of people that don't know shit about an industry.

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Jun 13, 2017

a couple of guys talked about MM lending in my thread here: http://www.wallstreetoasis.com/forums/alternative-...
in general, relaxed credit leads to economic growth, all else being equal, but the issue is if banks go back to some of the risky lending practices that got us into the crisis in the first place, then we're no better off. I would like to believe they're not that stupid, but I don't know.

before I give a really educated opinion, I'd have to see what he specifically wants to get rid of.

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Jun 13, 2017

Small banks can't afford/deal with the DF capital requirements and regulations. This has propelled consolidation in the industry in favor of the 'systemically important' institutions (i.e., zombie banks). The zombie banks are too risk averse to put the capital to use and large firms don't see too many attractive investments (low NPV). The result is that we've had Japanese style growth throughout Obama's presidency. The government has tried to prop up the economy via fiscal policy but, as in the case of Japan, with no success (as the debt continues to grow to unprecedented levels).

Our best option is to pull back on financial regulation and to allow interest rates to float. This will have a dramatic, adverse affect in the near term, but longer term, it would 'drain the swamp,' so to speak.

Jun 13, 2017

Increases systemic risk long term but great for short term earnings and bonuses.

Jun 9, 2017

Lots of consequential changes in the bill that passed. The one I'm most focused on is gutting Rule 14a-8 regulating shareholder proposals. Currently a shareholder needs 1% of stock or $2K minimum stock held for a year to get proposal on ballot. CHOICE would remove $2K minimum, meaning only activist hedge funds or huge asset owners (e.g., BlackRock, Vanguard) could ever challenge management. If you wanted to poke AAPL with a shareholder reso, you'd need to own $8 billion of the stock. A far-reaching change to corp. governance, to be sure. However, analyst consensus is that the whole bill dies in the Senate. There will never be any Dem votes for this.

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Jun 9, 2017

Great insight/analysis, appreciate it

Jun 10, 2017

I would count the gutting of this proposal as a win. The last thing we need need are social crusaders or self-centered individuals putting forth a multiplicity of shareholder proposals that have little, if any, value to the running of a company. The only people who should be proposing anything are those that are sophisticated enough to understand fully the repercussions of their proposals.

Jun 13, 2017
Jun 13, 2017

LOL

Jun 13, 2017

Very cute. I was looking for deal specifics.

Jun 13, 2017

Restrictions on equity investing (Volcker Rule) has hurt my group at least. The ability to come in with an equity slug for top tier clients got a lot of deals done that haven't been getting done post DF.

Jun 9, 2017

If there is overhaul, it will be bad for Consultants as their lifeblood is off regulation.

If there is overhaul, you'll see some more headcount I think in ECM/DCM and maybe M&A. I say maybe M&A as companies will probably benefit from organic growth more than inorganic in a lower reg environment (just speculating here).

I think smaller shops will add headcount. Larger firms? They'll just plug and play. They will bring on a few high performing MDs and maybe VPs, but junior? Same shit different market. Just IMO.

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Jun 12, 2017

It all depends on what pieces of legislation/regulation the consultants are focusing on. I work in regulatory consulting for alternative asset management firms and the scaling back of Dodd-Frank likely will not have an effect on us. The same might not be true in other areas though...

Jun 13, 2017

Is anyone under the impression this is a good thing?

Jun 13, 2017

Should be great for bulge brackets. They can lever up again.

Jun 13, 2017

we opened a bottle of champagne haha

Jun 13, 2017

Everything I've read is that this is a limited repeal that will benefit mm and smaller banks which have been overly burdened with regulation best suited for much bigger banks.

Jun 13, 2017

Here's the text of the executive order: https://www.whitehouse.gov/the-press-office/2017/0.... If you read it it doesn't explicitly mention Dodd Frank, but I'm guessing big banks can already start building out infrastructure and activity that the Volcker rule limited.

Jun 9, 2017

And somewhere, off in the distance... the sound of thousands of WSO monkeys, BSDs and junior mistmakers alike, simultaneously ejaculating.

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Jun 9, 2017

Junior mistmakers, lmao.

Jun 13, 2017

It doesn't mean anything. The guy is saying whatever to get elected. No one knows what Donald Trump is going to do if he gets into office, including Donald Trump himself.

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Jun 11, 2017

This likely won't pass the Senate so its not going to do anything for finance careers

Jun 13, 2017

I'm not in IBD or S&T, so I don't have a lot of info. what I do know is that because of Dodd Frank many firms (mine included) are spinning off or shutting down divisions of the company that are no longer as profitable (for some, this is commodities related) or are no longer legal for banks to have (prop trading).

check this out as well: http://www.mofo.com/files/uploads/images/summarydo...

Jun 13, 2017

Make Prop Trading Great Again!

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Jun 13, 2017
Jun 13, 2017