The Trump administration’s recent push to roll back Dodd-Frank could see massive amounts of wealth transferred from buffers on financial instability directly to owners of the largest banks in the country.
A reversal of post-crisis regulations ordered by the White House could eventually see some $100 billion move from banking reserves directly to shareholders of the six largest financial firms, the Wall Street Journal reported on Sunday night.
Relaxed rules would likely see banks use existing reserves to finance higher divided payments and stock buy-backs—moves that would give a shot in the arm to stock prices at the expense of long-term stability.
“As much as shareholders would welcome greater capital returns in the short term, though, such a move would entail risks,” the Journal noted.
The paper said that before the 2008 global banking collapse, spending to boost dividends and stock repurchases: “left big banks…poorly positioned for financial tumult, leading it and others to be bailed out by the government.”
House Democrats seized on the news hours after it was reported.
“The effect will be in the next economic downturn, when those banks have $100 billion less in cushions,” Rep. Brad Sherman (D-Calif.) said on Monday morning, at a press briefing on Capitol Hill.
“They know, or at least they believe….they’ll be bailed out again by the federal government,” he added.
House Financial Services Committee Ranking Member Maxine Waters (D-Calif.) said that Trump’s attack on Dodd-Frank contrasts sharply with his campaign promises to “’drain the swamp’ and ‘put America First.’”
“What a pack of lies he told,” she said. “Wall Street is running Trump’s White House.”
High ranking officials in the Trump administration, Waters noted, have worked in top positions at Goldman Sachs. Those include chief political strategist Steve Bannon, leading economic aide Gary Cohn, and Treasury Secretary nominee Steve Mnuchin.
Cohn just left Goldman to work in the Trump White House, after spending more than 25 years at the influential “too big to fail” Wall Street firm. He received a severance package that could be worth up to $285 million.
Democrats on Monday also hit out at another Trump executive order issued Friday, seeking to roll back the Labor Department’s fiduciary rule—Obama administration regulations requiring financial advisers to disclose their conflicts of interest to clients.
“We had that kind of system before we knew exactly how it turned out,” Waters said, referring to last decade’s subprime mortgage bubble. “Trump wants to go back to those days.”
