28 April 2017

Bloomberg: How Trump and Brexit could change global bank rules

[...]Since the U.S. election, financial stocks have rallied about 20 percent, in part on investors’ hopes for lighter regulations. Jamie Dimon, chief executive officer of JPMorgan Chase & Co., has written that the financial system is safer post-crisis but that banks, anxious about increased regulator scrutiny, now have too much capital, constraining lending. Anat Admati, a Stanford finance professor, counters that “no regulation stops banks from using their profits, or raising equity from investors, to make worthy loans.”

In a few instances some regulators have conceded there’s room to tweak the U.S. regulations. Daniel Tarullo, who spearheaded many of the most important restrictions at the Federal Reserve before he stepped down in April, said some requirements could be softened for smaller banks. But Trump has been pushing for even bigger changes. On April 21, the president ordered Secretary of the Treasury Steven Mnuchin to review regulations meant to help authorities wind down a failing bank, as well as rules for designating some nonbank financial institutions as systemically important and therefore subject to additional restrictions.

That worries policymakers outside the U.S. “The big question on which the Europeans are awaiting clarity is whether the U.S. really goes its own way on questions as pivotal as orderly resolution” of failing firms, says Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. in Washington.

At the Basel Committee on Banking Supervision, a group of regulators has worked toward international agreements on capital standards since the 1980s. A pending revision to the rule books is supposed to limit banks’ ability to use their internal risk-assessment methods to determine whether they have enough capital.

European regulators and politicians have argued that proposed changes are too tough on their countries’ lenders. The U.S. has so far taken a harder line than the Europeans. The latest Basel rules were supposed to be completed at the beginning of the year, but they’re on hold while European politicians and regulators wait to see whether Trump and his slate of regulators shift direction.

The EU is working to fine-tune regulations to make them more “growth-friendly,” said Valdis Dombrovskis, the EU’s financial-services chief, in an April 20 speech in Washington. Still, he said the bloc isn’t willing to lower standards for keeping banks safe. “We count on the U.S. to stand by the same principle,” he said.

European officials are also looking inward as they contend with Britain’s vote to exit the EU. May has joined other lawmakers in suggesting regulatory changes might be pursued post-Brexit. Intercontinental Exchange Inc., one of the world’s biggest trading platforms, has said Brexit offers the U.K. an opportunity to review misguided rules from Brussels. Lawyers at Shearman & Sterling LLP in London have called on policymakers to consider using Brexit to achieve a “market-friendly regulatory framework.”

Countries in the EU, competing to attract business as European finance reorganizes after Brexit, are asking whether regulations might be used as an incentive. Ireland already has complained to the European Commission, the EU’s executive arm in Brussels, that other countries are offering looser rules as part of a “dangerous competition” for business.

The ECB said it needs to consolidate oversight to prevent banks from playing national supervisors off one another. “We will be cautious of regulatory and supervisory arbitrage,” ECB executive board member Sabine Lautenschlaeger has said. “And we will not take part in a race to the bottom in that regard.”

Full story on Bloomberg

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