As US President Donald Trump and his administration take a chainsaw to the regulatory system, several observers have suggested that it is unclear whether these efforts will have the desired effect of promoting economic growth, or if they will create financial instability and bring about another financial crisis.
The Financial Times Editorial Board recently argued that the latter was more likely. "Where the US banking system goes, other major financial centres will be tempted to follow," the FT wrote. “[G]iven the breadth of America's plans to slash financial red-tape, the risk of a broader race to the bottom in regulatory standards remains.”
Unsurprisingly, the industry is much more sanguine about the deregulatory agenda following the Biden administration's hard-line stance, which the banks believe hampered growth. However, some experts have warned that Trump's more extreme cuts to regulatory staffing could have unforeseen consequences for banks. "It's certainly possible that they will cut not just fat, but also muscle and bone," Ian Katz, an analyst with Capital Alpha Partners, told the American Banker. “And if that happens, things can fall through the cracks.”
It has proven impossible to predict how the Trump administration's efforts will ultimately play out. However, bank leaders would be wise to ensure that their culture is supportive of desired employee behavior and good consumer outcomes. While banks will almost certainly enjoy a renewed sense of freedom, the public will still hold them accountable if they are seen to use this freedom as a license to take advantage of those they are meant to serve.
In a Weekend Reading article from late last year, Stephen Scott, Starling's Founder & CEO, reflected on the impact of the current political environment on banking regulation, arguing that a pro-culture agenda will be essential if banks and regulators are to achieve growth and competitiveness goals while rebuilding trust in our institutions.
"Culture sets the preconditions for sustained collaboration that define the modern firm," he writes. "Compliance with cultural norms establishes trust. Trust creates social capital. Organizations with greater social capital are more productive and enjoy sustainable competitive advantages that permit for growth. As it is for organizations, so is it too for whole economies and societies: trust, growth, and culture go hand-in-hand." ▸ Read More
Join The Discussion