While he doesn’t know what President-elect Donald Trump will do to regulate Wall Street, HSBC Chairman Douglas Flint does not think there is any chance Trump will roll back regulations significantly, he told Bloomberg TV Tuesday.
HSBC was founded in 1865 to finance trade between Asia and the West, and today it is one of the world’s largest banking and financial service organizations, serving around 46 million customers. Flint has been the Chairman of HSBC Holdings since December, 2010.
“I don’t think there is any chance, anywhere in the world, of regulation going to back to light-touch,” the bank executive proclaims. “That was not a good period. The banks don’t want it. Our biggest risk is our industry.”
The housing crisis of 2007 caught the American people and federal regulators by surprise, sparking a widespread panic. As governments typically do during periods of financial turmoil, regulators moved to institute tougher rules that would mitigate the risky banking and credit-lending activity behind the 2007 meltdown. The response from federal regulators and Congress was to pass a new law, the Dodd-Frank Wall Street Reform And Consumer Protection Act.
Dodd-Frank was intended to send the message to financial institutions: do not take risks. Regulators pushed large banks to increase their reserve ratios to absorb losses and improve risk-management capabilities. All of this, regulators hoped, would work to ensure banks were more resilient to shocks in the future.
The Federal Reserve Bank issued a set of rules in 2015 designed to reinforce aspects of Dodd-Frank. One of the rules required that the eight largest banks in the nation should maintain even more capital on hand to protect against losses. It is time for firms to “bear the costs that their failure would impose on others,” Fed Chairwoman Janet Yellen said.
The sentiment in Washington is that it is time to either dismantle, or significantly amend Dodd-Frank. President-elect Donald Trump promises to “dismantle” the 2,300-page regulatory legislation. Congressional Republicans unveiled a plan to substantially alter Dodd-Frank in June.
Filton thinks, however, that the increased regulatory scrutiny and capital requirement mandates placed on banks after the crisis are largely a good thing. “You do not want a part of the world where people are able to do things with much less capital than is economically advisable, because we (banks) are all exposed to each other,” Filton says.
“Light-touch regulation and competing on who can have the lowest standards is a really, really bad form of banking,” Filton
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