Since his election as the US president, Donald Trump’s transition team has announced its intention to rollback many elements of the Dodd-Frank Act.  With this announcement, the momentum for more financial regulations has been halted.  Furthermore, the race to the bottom in financial regulation has been restarted.

This race to the bottom highlights two fundamental problems with financial regulations.  First, even if a regulation would work, if it isn’t enforced, it may as well not be there. Second, regulations are subject to repeal.

The Trump Transition Team has promised to exploit both of these problems with financial regulations for the benefit of the banks.

As this promise is fulfilled, it highlights the importance of the Transparency Label Initiative.  The Initiative gives the buy-side the ability to exert market discipline where there are no longer regulatory restraints on the banks.

For example, the buy-side becomes the enforcer of the Volcker Rule after it is repealed.

How?

By using the label as leverage to get current exposure details, the buy-side ends the incentive to take proprietary bets.  When everyone can see what the bank is doing, it allows other market participants to piggyback on the banks and minimize the profitability of these bets (this is why Warren Buffett worked out a deal with the SEC so he doesn’t have to release changes to his investments until months later).