Trump Team Keeps Approach to Global Financial Rules, for Now

By FeaturesDow Jones Newswires

While President Donald Trump hasn't dropped his skepticism of global institutions, it seemed to be business as usual last year in terms of U.S. engagement with international financial regulators. But there are hints that this approach may change moving forward.

The Federal Reserve continued to work on international regulatory accords with bodies such as the Financial Stability Board and the Basel Committee on Banking Supervision during the first year of Mr. Trump's presidency, and there were no dramatic shifts as he began to reshape the board with his own nominees. The same was true at U.S. agencies such as the Commodity Futures Trading Commission, which under a Republican chairman continued to embrace multilateralism to promote U.S. interests and global financial stability.

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In December, international regulators announced an agreement on standardized risk measurements for global banks, the latest stage of the Basel banking accords, a sweeping overhaul of bank-capital rules that followed the financial crisis.

The process was supported by the Treasury Department and the Trump-appointed vice chairman for banking supervision at the Fed, Randal Quarles.

"It was quite close before I stepped into the building," Mr. Quarles said of the agreement in his first public appearance as a Fed official in November. "There is merit in ensuring that there is at least...some minimum level of comparability between the approaches internationally."

Changing of the guard

To be sure, it initially appeared that some administration allies were looking to disrupt the negotiations, at least until President Trump's appointees were firmly in place.

Rep. Patrick McHenry (R., N.C.), the vice chairman of the House Financial Services Committee and a close ally of the president, sent a letter to Fed Chairwoman Janet Yellen shortly after the inauguration, asking the central bank to "cease all attempts to negotiate" in international financial-regulatory forums until the administration installed its own officials on the Fed board.

But Ms. Yellen, who plans to leave the Fed when her four-year term as chief expires in February, made clear in her reply that she had no intention of slowing down efforts to coordinate international financial regulation, saying the Fed has the authority and a responsibility to consult with foreign counterparts "to ensure a strong, stable U.S. economy and financial system."

After Mr. Trump took office, the Basel negotiations continued first under Daniel Tarullo and then under Jerome Powell, Mr. Trump's nominee for Fed chairman. Both Mr. Tarullo, who resigned as a Fed governor in April, and Mr. Powell, a Republican, initially were appointed to the Fed under President Barack Obama.

In an email, Mr. McHenry said that his letter to Ms. Yellen was intended to send a message that Obama appointees shouldn't be negotiating on behalf of the U.S.

"The goal of my letter was to stop Obama-era bureaucrats like Daniel Tarullo who seemed to view the election as a race against time, rather than what it actually was: the American people demanding a changing of the guard," he said.

"Now that President Trump has his appointees in place at the Fed -- specifically Vice Chair Quarles -- they should be free to engage with international regulators as they see fit," he added.

Ms. Yellen, who has vowed a smooth transition to Mr. Powell, declined to comment.

At the CFTC, meanwhile, regulators were more engaged than ever in global regulatory bodies under Trump-appointed Chairman J. Christopher Giancarlo.

The agency took a lead role in trying to harmonize global swaps-trading rules, given that the U.S. completed its own rules years before other jurisdictions. And the CFTC says it now has officials at the helm of seven international standard-setting committees, an increase of 40% since Mr. Giancarlo took over for his Democratic predecessor as acting chairman last January. (He was confirmed as permanent chairman in August.)

The CFTC has "increased its focus on international engagement in an effort to actively promote U.S. interests and objectives," a spokeswoman for the agency said.

Potential shift?

Still, despite the continuity shown so far, some top Trump administration officials continue to question global rule-making bodies and what they describe as "mission creep" and "sprawl" since the financial crisis.

"I'm encouraging a clear, narrower focus of activities" at the Financial Stability Board, said David Malpass, who was confirmed in August as Treasury undersecretary for international affairs, in an interview. "There was clearly a different view of multilateralism in the previous administration."

In a series of reports over the past year, the Treasury Department has begun laying out what the U.S.'s focus should be in international regulatory forums. Keeping its critiques fairly broad, it recommended "recalibrating" bank capital and liquidity standards set by the Financial Stability Board (a group of central bankers and regulators deputized by the Group of 20 nations in 2009 to monitor and make recommendations about the global financial system) and called on U.S. regulators to "provide clarity on how the U.S.-specific adoption of any new Basel standards will affect capital requirements and risk-weighted asset calculations for U.S. firms."

Treasury officials also have recommended that the U.S. take the lead on reorganizing the many committees that make up the standards bodies -- including the FSB -- "by streamlining their mandates and eliminating existing overlapping objectives."

Treasury officials haven't elaborated on these recommendations, and a spokesman for the FSB, noting that it is a consortium run by regulators from its member nations, declined to comment.

Mr. Rubin is a reporter for The Wall Street Journal in Washington. Email him at gabriel.rubin@wsj.com.

(END) Dow Jones Newswires

January 22, 2018 13:07 ET (18:07 GMT)

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