US President Donald Trump is sowing the seeds for the second Global Financial Crisis (GFC) and risking future prospects for international financial stability with his proposals for regulatory reform in the finance sector, according to a University of Sydney professor.
Associate Professor Eliza Wu said stability would likely be rocky moving forward, as the new president was expected to relax previsions of the Dodd-Frank Act, which reduces exposure to risky products across the financial sector.
“While investors may be happy about the proposed deregulation, the future prospects for global financial stability are not great,” she said.
“This is worrying as a level playing field for banks operating around the world is critical for achieving global financial stability.”
Wu said banks would feel the added stress of uncertainty heading forward and would resort to extreme measures to combat policy changes.
“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,” she said.
“This is increasingly putting pressure on national prudential regulators to maintain and impose their own regulatory standards.”
The 2014 Financial System Inquiry had so far protected Australian banks as they continued to work to maintain high regulatory standards, but Wu said competition would increasingly die out in the domestic sector.
