Trending: ‘The Donald’ Trumps Hillary and Banks Take on Money Laundering
“The Donald” Trumps Hillary: Reactions and Implications
In an unprecedented turn of events, perhaps the most talked about Presidential election in American history culminated in Donald Trump’s election as the 45th President of the United States, effectively silencing many of the skeptics that had doubted his character, political intelligence, and his campaign overall. On the other hand, the results have seemingly intensified the political and cultural divides found within the United States, with many minorities, millenials, and women who voted against Trump filling the streets in protest in the hours following the election, exposing the true significance of some of the problems facing the country today.
The developments stemming from the election have been interpreted by many political figures around the world, including individuals with close ties to the United States, and many of these reactions were noted in the NBC News article “World Reacts to Trump’s Election Win: ‘It’s the End of an Era’”, cited in BSA News Now two days after the election. French Ambassador to the U.S. Gerard Araud had a unique take on this situation, which he delivered via the popular social media outlet, Twitter, on Wednesday where he wrote “the world is collapsing before our eyes”, and that “after Brexit and this election, everything from now on is possible” (Jamieson & Duchon, 2016). Norbert Roettgen, the head of German parliament’s foreign affairs committee, stated, “We’re realizing now that we have no idea what this American president will do if the voice of anger enters office and the voice of anger becomes the most powerful man in the world” (Jamieson & Duchon, 2016). In addition, several prominent Chinese media stations also regarded the result as American democracy entering into a crisis situation, and Argentina’s Foreign Minister said that Trump’s win would likely “stall recent moves to improve relations between the countries” and would have a major impact on the world and U.S. relations with Latin America (Jamieson & Duchon, 2016). However, the majority of these opinions are just that, and the negative effects of Trump’s election on global relations will remain to be seen until he is officially in office.
The election results have had a significant impact on the global stock market landscape however, with stocks dropping across the globe due to the general uncertainty surrounding Donald Trump. Many investors also fear that further global turmoil may result due to Trump’s erratic nature. With the upcoming changing of the guard in the White House, many legislative alterations are likely to occur that will have an impact on each of the economic sectors, specifically those provided by the finance industry. However, as CNBC’s Jeff Cox reported in his article “For banks, Trump’s election is a ‘grand slam’” cited in BSA News Now on Friday, November 11th, not all of the changes forthcoming will be negative, specifically for banks. Cox reports that Trump’s promised rollback in regulation has traders interpreting “his win as leading to the higher interest rates that banks like” (Cox, 2016). Dick Bove, vice president of equity research at Rafferty Capital Markets, sees “benefits to banks from three angles: legislative, regulatory and economic. Banks are likely to see key measures passed in Congress, regulatory measures rolled back and an inflow of cash to the financial system” (Cox, 2016). Cox also discussed possible changes in the industry that may result, including “adoption of Rep. Jeb Hensarling’s proposal to set a different benchmark — 10 percent equity to assets — for more intense regulations; elimination of the so-called Volcker Rule that restricts banks trading for their own accounts; and a weakened Consumer Financial Protection Bureau” (Cox, 2016). Bove also believes that top officials from the Federal Reserve could be targeted by Trump and will likely be faced with increased political pressure.
Cox concluded his article by implying that smaller, regional banks would benefit the most from the election, as it is likely that Trump will act to ease their regulatory burden via the probable appointment of industry-friendly regulators.
Banks Battle Money Laundering
A trend that continues to gain traction in the financial services industry is the fight against money laundering activity, and the practices banks utilize to actively monitor their financial security are becoming more widespread across the United States today. At times, maintaining compliance can come at the expense of others, however, and this is a phenomenon that has come to light exclusively in the past several years. Due to the increase in risks and costs associated with meeting regulatory requirements, there has been a drastic increase in the number of mergers and acquisitions of small banks across the United States, specifically banks with assets equal to or less than $150 million.
While remaining compliant is beneficial to financial institutions from a security standpoint, the cost of compliance does not come cheap. The article “How Banks Are Fighting Money Laundering” cited in BSA News Now on Thursday, November 10th describes a prime example of similar circumstances occurring in Texas today, as “In 2009, the Lone Star State had 373 banks with $150 million or less in assets. Today, that number has shrunk to 189—a 49 percent drop” (Bounds, 2016). Vernon Bryant, President of the Texas-based Southwest Bank summed up the situation by stating that “unless you have at least $250 million in assets, you don’t have enough size” to remain compliant in all areas (Bounds, 2016). According to statistics provided within the article, Southwest Bank alone spends approximately $1.6 million annually on its compliance operations, with $500,000 of that directed solely towards money-laundering related matters.
Additionally, increased regulatory pressure has seen banks removing themselves from the U.S.-Mexico border, simply due to the severe risk of money-laundering penalties that can accrue as a result of dealings with individuals in these areas where drug cartels are infamously prevalent. Writer Jeff Bounds also notes that “North Texas banks are jettisoning customers and lines of business” altogether as they attempt to manage their compliance issues (Bounds, 2016). The term “de-risking” has become quite popular in the financial services industry of late. This means that customers engaging in “high-risk” activities, whether legal or illegal, can be dropped in order to reduce a bank’s exposure to financial crime. This process is on the rise in 2016 specifically for those using cross-border services, especially in Latin America and other foreign countries that are notoriously high-risk. This has lead to apprehension over the possibility of backlash from foreign governments and financial institutions.
This trend figures to continue in the coming years, as the compliance burdens facing financial institutions across the United States will increase
tremendously given new regulations proposed by the Financial Crimes Enforcement Network (FinCEN). The latest proposal has given U.S. banks until May of 2018 to turn over the names of people who are “ultimate owners of certain accounts, regardless of what shell companies, trusts, or intermediaries account holders might use to hide their identities” which aims to aid in the effort to prevent tax evasion both domestically and overseas (Bounds, 2016).
The article closes with an argument against the “strict and punitive approach” to enforcement of compliance regulations found within the United States, and begs the question if the “benefits of the government’s money laundering regulations are worth the risk and expense that banks must shoulder to comply?” (Bounds, 2016). Many contend that the approach the United States has taken is too harsh, and fear that it may scare compliance professionals away from seeking employment in financial institutions due to fear of personal fines being issued against them. Others say that imposing penalties on personnel is very appropriate under certain circumstances, as it can lead to increased accountability and ultimately efficiency among staffers. One thing is for certain – with the progression of compliance regulations, domestic banks have their work cut out for them in the coming years.