For Wall Street, this week might mark the end of the sweeping period of financial deregulation that has defined the Trump era.
Bank regulators will meet Thursday to wrap up a major revamp of the Volcker Rule and to scrap a constraint that’s forced lenders to set aside ten of billions of dollars to backstop derivatives trades. If President Donald Trump fails to win a second term, the changes will probably be among the last that watchdogs he’s appointed will get done before a new cast of agency heads takes over.
This push “could certainly represent the last wave of Dodd-Frank rollbacks under these regulators,” said Greg Gelzinis, a policy analyst at the Center for American Progress. He notes that while some of the agency leaders could remain in their posts until their terms expire and the Senate confirms successors, a Joe Biden victory in November means they’d be working during a Democratic administration that has dramatically different priorities.
The Volcker Rule revisions that the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency plan to take up this week will ease restrictions on lenders doing business with investment funds, including constraints on banks’ ties to venture capital funds. Last year, regulators already softened the better-known aspect of Volcker that restricts lenders from engaging in proprietary trading -- the practice of making market bets for themselves instead of on behalf of clients.
$40 Billion
Banking agencies are also poised to eliminate a separate requirement that banks hold margin when engaging in derivatives transactions with their own affiliates. Getting rid of the demand could free up an estimated $40 billion across the industry. But critics argue it could mean taxpayer-backed banks will amplify their risks to more dangerous levels.
Agency heads have six months left before the next administration begins. That’s not much time to propose an overhaul of regulations, seek public comment and finalize changes. That’s particularly true if Democrats retake the White House and the Senate because Congress can rescind rules within months of their approval through the Congressional Review Act.
Trump is trailing in polls across the board, nationally and in battleground states, according to the RealClearPolitics average. He had hoped to ride a strong economy to a second term, but the coronavirus and related shutdowns have left tens of millions out of work and the U.S. in recession. However, a New York Times poll released Wednesday showed the economy as the only bright spot for Trump. Half of those surveyed had a positive opinion of how the president is handling it.
Looking back, what bank regulators have accomplished in the past four years isn’t the doomsday scenario that consumer advocates feared after Trump pledged in January 2017 to “do a big number” on the Dodd-Frank Act.