Efforts toward financial deregulation are beginning to take concrete shape on rules governing trading desks, bank boardrooms, corporations’ financial disclosures and more. Nearly seven months into the Trump administration, regulators are setting the stage for a wave of eased rules.
Several agencies are reviewing the Volcker rule, a part of the 2010 Dodd-Frank Act that limits banks’ trading. Some regulators also recently dropped a plan to restrict bonuses on Wall Street that had been opposed by banks and brokerage firms. And the Labor Department on Wednesday disclosed an 18-month delay in the so-called fiduciary rule that requires brokers to act in retirement savers’ best interests rather than their own.
The moves show that while President Donald Trump is struggling to advance his legislative agenda in Congress, his administration has begun laying the groundwork to change some of the myriad rules that Wall Street has sought for years to overturn or water down.
“On most topics, we are still awaiting the approval of appointees, but it is encouraging that there are some issues, some of which are technical but incredibly important to running a bank, where some progress is being made,” said Greg Baer, president of the Clearing House Association of large banks.
“It is a time to…determine where the pendulum has gone too far,” Craig Phillips, counselor to U.S. Treasury Secretary Steven Mnuchin, told a government-advisory committee July 20 at the Federal Reserve Bank of New York.
Mr. Phillips, a former investment banker and senior executive at BlackRock Inc., has been leading the administration’s effort to identify changes to financial rules. He was a principal author of a Treasury Department report released in June that recommended 97 policies in the lending sector for Congress and regulators to re-examine. More reports are coming, covering other sectors.
So far, the rule book for Wall Street hasn’t been rewritten in major ways, in part because nominees for some key posts haven’t been named or are awaiting Senate confirmation. But officials who are in place are laying the groundwork.
Those efforts are triggering pushback about whether they would undermine protections adopted after the 2008 bank bailouts. Ohio Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, has said many of the proposals amount to “weakening or eliminating important safeguards.”
“Big banks are making record profits, yet they claim they’re besieged by their watchdogs,” he said last month.
Mr. Baer calls the changes under consideration “an effort to rethink things in a cogent way.”
Partisan tensions on Capitol Hill will make it difficult to make changes through legislation, meaning some items on the industry’s wish list, such as full repeal of the Volcker rule, are unlikely. But that inertia doesn’t restrict agency officials, who typically have broad discretion on how to implement rules that stem from legislation Congress has passed.
The current regulatory agenda of the Securities and Exchange Commission, published in July, removed more than a dozen proposals related to Dodd-Frank, including the plan to restrict bonuses.
The commission’s Trump-nominated chairman, Jay Clayton, has said he wants to lighten the regulatory burden on public companies, which are required to make public filings to keep shareholders informed about financial performance, business trends and potential risks.
He hasn’t taken action to scale back those rules yet, but his predecessor Michael Piwowar, a Republican SEC commissioner tapped by Mr. Trump to serve as acting chairman until Mr. Clayton was confirmed, started work toward changing two rules. One requires disclosure of the pay gap between chief executives and workers, and another requires companies to investigate whether their products include minerals from African countries where mining can benefit armed groups. Any significant changes to the rules would require an opportunity for public comment and a commission vote.
Mr. Clayton, in remarks last month to the U.S. Chamber of Commerce, also questioned whether small shareholders are abusing an election process that allows them to seek changes to corporate bylaws.
A more radical SEC step under study is how to revise the rules for who can invest in private companies. U.S. law allows companies to issue stock with little regulatory oversight as long as all investors qualify as wealthy or sophisticated enough to understand the risk or withstand potential losses. But Mr. Piwowar has questioned the restriction, saying it walls off sought-after investments for the rich.
The SEC and the four other federal agencies that wrote the Volcker rule agreed in recent weeks to give banks leeway on aspects of the regulation while beginning private discussions about how to rewrite it.
The Office of the Comptroller of the Currency, the chief agency that regulates federally chartered banks and which is temporarily led by a Trump appointee, took the first tangible step toward potentially rewriting the rule when it reopened it for comments from the public.
In early August, the Senate confirmed three of Mr. Trump’s nominees to the U.S. derivatives regulator, the Commodity Futures Trading Commission, including Chairman J. Christopher Giancarlo. That representation will strengthen the commission’s ability to carry out Mr. Giancarlo’s desired revamp of postcrisis rules governing the swaps market.
Mr. Trump in July announced his pick for the vacant job of Federal Reserve vice chairman in charge of bank oversight. The nominee, financier and former Treasury Department official Randal Quarles, has said he would support reviews of the Volcker rule as well as the central bank’s annual stress tests of large banks.
Staffers at the Fed already are taking a fresh look at a bank-capital rule known as the leverage ratio, a move long sought by the largest U.S. banks.
And the Fed in August proposed scaling back requirements it places on banks’ boards of directors, after determining it was overloading boards with too many specific requirements.
Not all the action is deregulatory. The new CFTC commissioners recently vowed to finish a position-limits rule to limit speculation in commodity markets, a regulation mandated by Dodd-Frank.
The Consumer Financial Protection Bureau, still led by an Obama appointee, in early July restricted mandatory arbitration in financial contracts, making it easier for consumers to sue financial companies. That rule won’t last if enough Republicans in the Senate vote to repeal it in the coming weeks.