Would the 2008 financial crisis have occurred if the original Dodd Frank had been in place?
This was one such question posited by the audience in yesterday’s live webinar, looking ahead at how the proposed adjustments to the Dodd Frank Act will shape bank strategy and in turn, fintech strategy.
“I don’t believe so,” said Desiree O’Niell, leader of regulatory solutions at Broadridge. “We’ve required recovery and resolution planning as well as enhancement of balance sheets in terms of capital, so it could have lessened the severity of the crisis.
“But given what went on with the mortgage market and the perfect storm of events, I don’t know if it could have been prevented,” said O’Niell.
Evgeny Likhoded, CEO of ClauseMatch, a regtech, was equally as unconvinced, citing that regulations are reactive rather than preventative and also making the point that the stringent requirements would have hugely impacted innovation in the banking space.
“Since Dodd Frank, the US lost 14% of its community banks which are vital to the US economy, negatively impacting local businesses, farms and home buyers,” said Likhoded, “even Ben Bernanke of the Fed could not refinance his mortgage.”
When questioned if this might mean even greater relaxation in the coming months, O’Niell believed it was too early to say: “We’re still in the comment period and we have yet to see how the agencies will handle enforcement going forward.
“The proposed regulatory guidance on Volcker is in the 60-day industry comment period. S.2155 is in the 180-day regulatory guidance period, where the Agencies need to draft the accompanying regulations that tell us how they will enforce the statute.
“Both Volcker and S.2155 explicitly grant discretionary authority and it will be interesting to see how the agencies handle that,” said O’Niell.
In terms of the immediate impact of the rollbacks and how it might shape global banking, Likhoded recalled his time at Morgan Stanley around the time of the Dodd Frank enforcement: “We were frantically novating our trading portfolios to our European broker-dealer to avoid new regulatory requirements.
“This is what we might see happening as well here. Certain activities might find a new home in the US, especially given that some of the banks that fall below the new Dodd Frank threshold are US bank holdings of European megabanks like Deutsche Bank, BNP Paribas, Credit Suisse and UBS.
"This is amplified by the fact that Europe just went through MiFID II implementation which increases compliance burden for financial services here.”
Whether the increased activity in the US would convert to opportunity for fintechs and regtechs divided the panel in what turned out to be the liveliest part of the debate.
Listen to the full webinar (28min): https://t.co/sFenJAS7mh