Now It's Russia's Turn to Worry Over Trump as Dodd-Frank at Risk

(Bloomberg) -- Russia can’t tell yet how far Donald Trump will go in dismantling the regulatory defenses put up by the U.S. since the 2008 global financial crisis, but that doesn’t stop it from feeling the angst about what such an overhaul could mean for markets.

“We, along with other central banks, would be worried if the U.S. completely turns away from all the regulatory changes undertaken in recent years,” Bank of Russia First Deputy Governor Ksenia Yudaeva said in an interview last week at the St. Petersburg International Financial Congress. “This would seriously change the situation in the market and be a big shock, both in the short and long term.”

While the government in Moscow saw Trump’s election as an opportunity to reset its relationship with Washington, Russia’s hawkish central bank is taking a more conservative view of the U.S. president’s “America First” policies. It isn’t alone in watching the proposed changes with trepidation. Bank of France Governor Francois Villeroy de Galhau last month warned against unilateral deregulation, arguing that it would increase the risk of a fresh crisis.

The Republican-controlled Congress is intent on rolling back some of the regulations of the sweeping 2010 Dodd-Frank Act, the U.S. response to the financial crisis that included the so-called Volcker Rule which limited proprietary trading by banks. The Treasury Department is pressing ahead with plans to weaken or rewrite dozens of restrictions imposed on Wall Street, arguing that they dampen economic activity. In June, the House passed a bill to rip up much of the law, but the overhaul as written has little chance of advancing in the Senate.

‘Change Everything’

“Starting to change everything could, of course, significantly change the situation in markets,” Yudaeva said. “Based on what I know, there’s no talk of any such large-scale changes.”

The existing rules have already been effective in deflecting what Yudaeva calls “shock events,” which she said include the U.K.’s plan to leave the European Union, the crisis in Syria and last year’s presidential election that resulted in Trump’s surprise victory.

“Financial markets reacted to them, of course, but it wasn’t anything outrageous,” she said. “Markets have certainly become more stable, and one can assume that it’s due to those reforms that were introduced.”

The Russian regulator will take a wait-and-see approach to the Trump administration’s agenda, given that it is still in the planning phase, she said.

“It’s not clear exactly what Trump’s concrete proposals are to liberalize financial markets,” Yudaeva said. “It doesn’t seem like they are proposing to completely eliminate all the new rules introduced under Dodd-Frank.”

To contact the reporters on this story: Olga Tanas in Moscow at otanas@bloomberg.net, Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Gregory L. White at gwhite64@bloomberg.net, Paul Abelsky, Tony Halpin