The current US administration’s approach to financial markets and institutions mixes familiar deregulatory policies with a range of other policies that are largely without precedent. This column, taken from a CEPR book on the economic consequences of the second Trump administration, catalogues the relevant policy shifts that are likely to affect the financial sector and considers how these shifts may impact financial stability, capital markets, and the global dollar system.
Authors Gary Gensler, Lev Menand, Joshua Younger
27 Aug 2025
The second Trump administration’s approach to financial markets and institutions mixes familiar deregulatory policies with a range of other policies (financial and non-financial) that are largely without precedent and may lead to significant structural change in the long term. Combined, these policies have the potential to affect the financial sector in at least four ways. First, they could threaten the foundations of the global dollar system – mutual cooperation, trust, and interdependency, both between the producers and consumers of financial instruments and among the nations that constitute the dollar bloc. Second, they may undermine financial stability by loosening prudential standards, especially with respect to limits on leverage. Third, they can jeopardise consumer and investor confidence by relaxing regulatory standards and lessening financial law enforcement. Fourth, they could frustrate the financial crimes and sanctions regime, notably by promoting stablecoins, which can be used beyond the reach of governments to enable various forms of illicit activity.
These effects, in turn, could have a negative impact on the economy in the medium to long term. They raise the risk of financial instability and a messy deleveraging. They also may put upward pressure on interest rates for public and private dollar-denominated debt. Although the global dollar system has proven robust to past disruptions, and remains well entrenched, the administration’s new stance, if pursued to its logical end, could increase financial fragility and impair capital formation. If that comes to pass, a future exogenous shock to the economic or financial system would pose significant risk to economic growth if policymakers are unable, in the face of such a shock, to come together swiftly to avert a disorderly monetary contraction.
This chapter proceeds in two parts. First, it catalogues the relevant policy shifts that are likely to affect the financial sector. Then it considers how these shifts may impact financial stability, capital markets, and the global dollar system.
cepr.org
Trump is also prone to doing multiple U-turns. |
