Four years after the Dodd-Frank financial law became reality, Washington's regulatory machine is altering Wall Street in fundamental ways, The Wall Street Journal reported yesterday. Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny and building up defenses to help weather future crises. While profits are up as firms slash costs and reduce funds, their traditional profit engine — trading — is showing signs of weakening as banks step away from some activity amid regulatory pressure. The new regulatory regime is also prompting banks to add thousands of staffers to help ensure compliance. Bank regulators point to the changes on Wall Street as evidence of their efforts to suck risk out of the financial system, but the banks' efforts are not enough to dampen worries among some policymakers and lawmakers that the broader economy remains vulnerable to the potential collapse of a large, interconnected financial firm. Banks are getting hungrier for risk as they try to compensate for sluggish economic growth, ultra-low interest rates and higher regulatory costs, although appetites remain subdued compared to pre-crisis levels.
