President Donald Trump has repeatedly vowed to loosen Wall Street’s leash, but some of regulators’ most meaningful efforts to revamp post-crisis constraints on big banks are running into problems.
Take the Volcker Rule, which restricted banks from making risky market bets with their own money. Under Trump, federal agencies sprinted to rewrite it, issuing an overhaul plan last May. Yet instead of showering regulators with praise, industry lobbyists blasted Volcker 2.0, arguing it might be even more confining than the version already on the books.
Now, watchdogs are going back to the drawing board to rethink a controversial method they came up with for determining what trades are banned by Volcker. That will probably require re-proposing the whole thing, people familiar with the matter said last week, potentially pushing banks’ timeline for getting relief into next year.
Bank Capital
Another key proposal from Trump-appointed regulators that’s hit a stumbling block would revise what’s known as the leverage-ratio rule -- a requirement that lenders maintain a minimum level of capital against their assets so they can withstand losses. A rewrite released last year could let Wall Street firms re-deploy a whopping $121 billion now locked up in their banking subsidiaries.
In their rush to get something out, the Federal Reserve and Office of the Comptroller of the Currency issued their plan for changing the leverage ratio last April without the participation of another agency that must be involved: the Federal Deposit Insurance Corp.
At the time, the decision made some sense. The FDIC was being run by a holdover from the Obama administration because the Senate hadn’t yet confirmed Jelena McWilliams, the banking lawyer who Trump picked to lead the regulator.
But McWilliams raised a caution flag last month, saying it could be legally questionable for her agency to just sign off on the Fed and OCC’s proposal after the fact. She said the rule may need “some kind of re-proposal.” If that happens, it would restart a months long bureaucratic process.
‘Bad Things’
“The irony is they’re not only doing bad things; they’re doing bad things badly,” Dennis Kelleher, the president of Better Markets, said of regulators. His Washington-based advocacy group urges stiff rules for financial firms.
Spokesmen for the Fed, OCC and FDIC declined to comment on the status of their rule proposals.
Dialing back Volcker and the leverage ratio are at the top of Wall Street’s de-regulatory wish list, and delays could have consequences beyond just testing bankers’ patience.