Wall Street’s high-flyers in Davos, basking in their firms’ strong fourth-quarter earnings, said they’re confident Donald Trump’s incoming administration will loosen regulatory constraints on financiers -- even if it leaves Barack Obama’s signature Dodd-Frank Act largely intact.

Bank executives, speaking on condition of anonymity at events around the Swiss ski resort, said they’re not counting on Trump to overturn Dodd-Frank. Instead, they expect the federal agencies that enforce the rules to ease up on them and support bankers’ efforts to limit how much capital and liquidity their companies need to pay bills or absorb losses in a crisis.

The bankers said they recognize that changing or overturning the 2010 Dodd-Frank Act would require support in the U.S. Senate that Republicans may lack. Instead they’re counting on Trump’s team to dial back how supervisory agencies enforce and interpret rules. Led by Federal Reserve Governor Daniel Tarullo, U.S. regulators have adopted an extra-strict version of the global standards on capital and liquidity set by the Basel Committee on Banking Supervision in the aftermath of the 2008 financial crisis.

“Legislation, obviously that’s harder to do than just changing regulations,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said in a Bloomberg Television interview with John Micklethwait on Wednesday. “Regulators can change a lot of things easily about compliance, about costs, certain rules about lending, how you use your liquidity, how you use your capital. I would like to see some of those looked at and maybe modified a bit, and I think it would be good for the economy.”

At a panel discussion on the global banking outlook in Davos Thursday morning, JPMorgan asset-management CEO Mary Callahan Erdoes echoed that view.

“It’s going to be a great several years,” Erdoes said. “It’s going to be very positive for businesses in the U.S., which should cascade to businesses around the world.”

David Fuller's view

There has always been a cycle to bank regulation.  When excessive speculation by banks ends in a crash, as we last saw in 2008, and many of them have to be rescued, there is always a call for new, much tougher regulations.  These are designed to significantly boost cash reserves, limit leverage and also punish the offending banking industry. 

As a consequence, it is more difficult for the economy to recover because banks are unable to provide the liquidity required by their customers, as we have seen since the 2008 credit crisis recession. Eventually, anger towards banks subsides and governments commence easing tight regulations, as we are about to see with the incoming Trump administration. This will help the banking industry and also the US economy.

Some people worry that this will soon lead to another banking crisis.  Those concerns are premature because banks are not about to repeat the same mistakes at the first opportunity.  On average, it usually takes at least a generation before banks lose their discipline and contribute to another financial crisis.