Bank stocks soar as Trump targets Dodd-Frank regulations

You may have heard of Dodd-Frank.

Donald Trump doesn't like Dodd-Frank and investors like that kind of talk.

This is not bullying of Dodd-Frank. It is a law, not a person.

It's a name that haunts the financial services sector as it refers to the wide-ranging set of measures implemented by the United States to help prevent another financial crisis.

In essence, the law imposed greater regulatory oversight on financial institutions, such as Wall Street's banks, to stop them repeating the mistakes of the past that resulted in the largest recession since the Great Depression.

The Act - named after the senators who drew it up - was agreed by the Obama administration in 2010 but described on the Presidential election campaign trail by Mr Trump as a "disaster".

:: RBS (LSE: RBS.L - news) takes fresh £3.1bn hit over US mis-selling claims

He argues that Dodd-Frank has cost the financial sector hundreds of billions of dollars and is a barrier to lending and job creation.

Now (Frankfurt: 11N.F - news) , Mr Trump has signed an executive order directing the Treasury Secretary to review Dodd-Frank.

A senior official told reporters: "There are quite a few things that we could do on Dodd-Frank... that we think will have fairly immediate and dramatic impact."

Some of those changes could include personnel changes at regulatory agencies or additional executive orders but there was no further detail.

Jasper Lawler, senior market analyst at London Capital Group, said: "Since Dodd-Frank was introduced, banks have devoted a lot more capital towards compliance and have had to decrease leverage, both of which are a direct hit to profitability.

"If Dodd-Frank is watered down, that's a direct boost to the bottom line for banks."

Bank profitability has also taken a knock from the low interest rate environment since 2009 - a scenario largely self-created - as well as through being made to pay handsomely for legacy issues related to the crash.

Institutions worldwide are continuing to face multi-billion dollar fines for their roles in the mis-selling of mortgage-backed securities in the US.

US bank stocks were not the only ones benefiting from the prospect of an easier life.

Barclays (LSE: BARC.L - news) and RBS were among the biggest gainers on the FTSE 100 while other financial services stocks were also up sharply.

They were boosted by hopes the President would also target a new law from President Obama's time in office aimed at ensuring retirement advisers and brokers act in their clients' best interests on US accounts.

That has now happened too. In addition to the executive order on Dodd-Frank, Mr Trump has also signed a presidential memorandum delaying the implementation of that law.