US President Donald Trump’s plans to ease banking regulation poses a risk to global financial stability, according to a UNSW professor.
University of Sydney associate professor Eliza Wu said the relaxation of the Dodd-Frank Act, introduced by former President Barack Obama to protect bank consumers after the global financial crisis of 2008, increases the sectors exposure to “risky financial products”.
“While investors may be happy about the proposed deregulation, the future prospects for global financial stability are not great as President Trump sows the seeds of the next global financial crisis,” she said.
Ms Wu said the Basel Committee on Banking Supervision’s decision to delay the finalisation of the new Basel 3 rules had also contributed to “uncertainty regarding banking regulatory reforms” currently facing the global banking sector.
“This is increasingly putting pressure on national prudential regulators to maintain and impose their own regulatory standards – this is worrying as a level playing field for banks operating around the world is critical for achieving global financial stability,” she said.
“When the playing field is not level, banks will respond by ‘rushing to the bottom’ and shift their operations to places where the regulation is less stringent.”
Under these circumstances, Australia would “inevitably lose out” as the country’s high regulatory standards would result in less competition within the domestic banking sector, Ms Wu said.