last week, i posed a provocative question on a financial services discussion board: if the expected overhaul of financial regulations proceeds, do we still need to worry about planning for the failure of big financial institutions, including derivatives clearinghouses? that is one of many questions that have been raised by the recent election and the call to repeal the dodd-frank act, the financial regulations passed in the aftermath of the 2008 financial crisis. part of those regulations concerned rules for running most, if not all, derivatives trades through a clearinghouse or central counterparty. but a blueprint for what to do if the clearinghouse itself runs into financial trouble and needs saving has been a point of much discussion among those interested in financial regulation. answers to these questions are hard to come by, because although many members of the soon-to-be dominant political party have called for such a repeal, the movement that elected the new president is at least in part based on hostility to the <u+201c>establishment,<u+201d> which presumably includes the big wall street banks that are largely the focus of dodd-frank. at times during the campaign, donald j. trump suggested he would reinstate the old glass-steagall rules as part of repealing dodd-frank. these were the new deal regulations, in force until the late 1990s, that kept depository banks separate from investment banks and insurance companies. a change like that addresses only a part of the broader scope of the postcrisis overhaul. for example, what do we do about <u+201c>resolution,<u+201d> or bankruptcy, for banks? some have suggested moving all of what is now covered by the orderly liquidation authority, the federal deposit insurance corporation<u+2019>s new insolvency system for <u+201c>too big to fail<u+201d> institutions, into the broader bankruptcy system. that might work, but often it is also suggested that these big bank cases should be put in front of life-tenured district court judges, rather than bankruptcy court judges who serve 14-year terms, because the cases are apt to be so politically fraught. that would seem to lose most of the benefits of the current bankruptcy system, which operates as well as it does because of the practical, common-sense approach that most of the bankruptcy judges bring to cases. moreover, district court judges are generalists and spend little of their time thinking about insolvency. and reinstating glass-steagall will not address derivatives. are we going to go back to the precrisis nonregulation of derivatives? as my opening question asks, does the repeal of dodd-frank mean abandoning the move toward transparency in these markets, including the use of central clearinghouses and the required posting of collateral to back up these trades? there are a host of questions here. for example, are we also going back to the old system of consumer protection in the financial industry? we will probably have to wait a good while for answers, as the new administration is apt to focus on the more politically charged issues of repealing the prior administration<u+2019>s health care, immigration and environmental regulations. and there is also the matter of the supreme court and the many other judicial vacancies left by the senate<u+2019>s decision to halt judicial confirmations. in the end, it means several more years of uncertainty for the financial industry. somewhat ironically, just as the industry was finally adapting to the new regulatory framework, that framework<u+2019>s permanence has been thrown into doubt.
trump<u+2019>s presidency raises questions on the future of wall st. regulation
stephen j. lubben