All of Donald Trump's packaged campaign promises were wrapped in a mostly red, white, and blue ribbon slogan: Make America Great Again.
Since taking office, President Trump has been unwrapping those promises in rapid-fire succession.
Last Friday, as part of his deregulation platform, the president signed an executive order calling for the Treasury Department to review the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a 2,300-page law that mandated extensive reforms of the financial industry.
Unfortunately, making America great again has nothing to do with making big banks bigger and more dangerous again.
When it comes to financial deregulation, we need to separate fake news about banks being held back from lending from the truth about their power, profits, and potential to sink America again.
The Truth About the Big Banks' Ability to Lend
After signing the executive order on Feb. 3, 2017, the president met with a group of business executives, including JPMorgan Chase & Co. Chief Executive James Dimon and BlackRock Inc. CEO Laurence Fink.
Here's what President Trump said at the meeting:
We expect to be cutting a lot out of Dodd-Frank, because frankly, I have so many people, friends of mine, that had nice businesses, they just can't borrow money. because the banks just won't let them borrow because of the rules and regulations in Dodd-Frank.
While I'm an advocate for smart deregulation and I support the new president, it's wrong to not call out obviously fake news.
Because here's the thing – America's big banks are lending. They've all increased their loan books significantly. In fact, according to the U.S. Federal Reserve, the biggest banks have increased core lending 6% annually since 2013. Commercial loans outstanding in 2016 stood at a record $9.1 trillion.
Just last year, JPMorgan grew its loan books by 10%, and Wells Fargo increased loans 5.6%.
"The claim that regulations are prohibiting lending is simply false," said Anat Admati, a Stanford University finance professor and member of the Federal Deposit Insurance Corp.'s Systemic Resolution Advisory Committee. "The banks have plenty of money and can raise more from investors like other businesses if they have worthy loans to make. If they don't lend, it's because they choose not to lend and instead do many other things."
Here's What Big Banks Would Rather Be Doing
"Other things" are what cutting Dodd-Frank regulations, including the Volcker Rule, are all about for big banks. They've got plenty of money to make loans, they want to free up regulatory capital to trade for themselves like leveraged hedge funds and get back to devising other profit-making schemes, which is what Dodd-Frank stops them from doing.
Banks have mandated levels of capital they have to hold and have reserve requirements that they have to set aside against loans and bets they make.
But banks don't actually "hold" capital. In banking, capital refers to the funding they receive from shareholders. Every …
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
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