Sunday 5 February 2017 7:36 pm

Dodd-Frank reform could force UK to loosen financial services regulations

The UK and the rest of Europe could come under pressure to loosen financial services regulations, analysts have said, after the President of the United States last week set in motion his plans to scale back rules across the pond.

Donald Trump signed an executive order for the 2010 Dodd-Frank financial regulations to be reviewed on Friday.

The news sent bank shares flying, with Morgan Stanley up five per cent and Citigroup and Bank of America both up three per cent.

Read more: RIP Dodd Frank: Trump's adviser signals the end of the banking regulation

In the UK, Barclays, which has significant US operations, saw its share price leap four per cent.

Shares in Lloyds, Royal Bank of Scotland and HSBC were also up, but to a lesser extent.

“It feels a lot like the next iteration of beggar-thy-neighbour economics,” said Panmure Gordon’s chief economist Simon French, referring to policies that benefit one country at the expense of others.

“We’ve seen it on currency… we’re trying it now on trade, and regulation feels like the next stage for that.

“Therefore, for European banks and for British banks, it kind of says: ‘Look, if you want to stick with all the Basel protocols and everything else that are international standard, then your marginal cost of doing business is going to be higher than it would be in the US if they start to repeal a lot of this stuff.’

“So it’s an entirely rational reaction to see UK stocks rise on the anticipation that [changes to] Dodd Frank will be replicated here.”

Read more: Clamour for a rapid Brexit will grow if Trump slashes financial regulation

He added: “There is an alternative narrative, of course, which is that institutions that are profitable and competitive in London may find marginal amounts of their business moving to New York if the regulatory environment is more welcoming.”

Tim Ghriskey, chief investment officer of Solaris Group, told City A.M.: “Any time you eliminate economic burdens, it makes those institutions more powerful, more profitable…

“It certainly makes banks more powerful.”