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The EU’s executive arm blunted a number of international rules on capital, leverage and liquidity in draft legislation introduced last week, arguing that the alterations were needed to promote growth and jobs. Trump’s advisers are using the same logic to justify a plan to scrap the Dodd-Frank Act, the centerpiece of the U.S. response to the financial crisis.
One such EU change with the potential to spur a U.S. policy shift is a cut in the amount of capital banks need for derivatives they handle for clients that are settled at third-party clearinghouses. The EU has taken the lead in softening the rule, potentially saving its banks billions of dollars and putting pressure on the U.S. and the Basel Committee on Banking Supervision to follow suit or risk fracturing the global financial framework.
“Our markets are global, and it’s critical that the Basel Committee and other international and national regulators take similar action,” said Walt Lukken, president of FIA, a trade group that represents banks, brokers and high-speed traders active in derivatives markets around the world.
After years of ratcheting up regulatory requirements for banks, the EU’s sweeping legislative proposals underscore policy makers’ increased willingness to respond to industry concerns that post-crisis rules have overreached and threaten to harm the economy. This argument is especially potent in Europe, where companies rely on banks for most of their financing.
When asked last week about Trump’s potential to disrupt the global banking framework, Valdis Dombrovskis, the EU’s financial-services chief, said Europe is implementing the rules and expects other countries, including the U.S., to do the same. Andreas Dombret, a member of the Bundesbank Executive Board, echoed those sentiments.
Countries don’t have to translate international rules word-for-word into national law, however. The EU took the opportunity to tailor the rules to the “specificities of the European banking sector,” as Dombrovskis put it.
Anthony Scaramucci, founder of SkyBridge Capital and a Trump adviser, made a similar case last week for easing U.S. regulation to boost the economy. “We’re over-regulating the society to try to prevent a systemic crisis,” Scaramucci said. “When you over-regulate a society, what you do is you slow down the growth and you slow down the opportunity.”
The EU also wants to ease international standards mandating that lenders have stable funding to weather future downturns. Its proposal puts the standard in place, but seeks to avoid harming derivatives and short-term funding markets that the industry has said could otherwise see costs spiral.