By Christina Rexrode and Emily Glazer
Big banks have an unexpected message for President-elect Donald
Trump: Don't trash the Dodd-Frank Act.
"We're not asking for wholesale throwing out Dodd-Frank," J.P.
Morgan Chase & Co. chief James Dimon said at a
financial-services conference this week where he and other big-bank
executives spoke, often addressing potential regulatory changes for
the first time since the election.
That is a contrast to some in Washington who have called for
full repeal of Dodd-Frank, the legislation passed in 2010 that
imposed new constraints on banks and created new agencies like the
Consumer Financial Protection Bureau. A proposal that would
effectively replace Dodd-Frank, by Rep. Jeb Hensarling, the
Republican chairman of the House Financial Services Committee, has
gained momentum since the election.
The Trump team has talked about dismantling the law, although it
has yet to state clearly whether this would involve a repeal of
Dodd-Frank. Bank stocks have soared about 20% since the election,
partly on the belief President-elect Donald Trump in some way will
lighten banks' regulatory load.
While banks favor a paring back of regulation, they tend to
think in practical terms, rather than ideologically. And their core
message seems to be: Make regulation simpler and less costly, but
don't return banking to the Wild West days that preceded the
financial crisis.
In many ways that is understandable. Banks have spent half a
dozen years and hundreds of millions of dollars to adapt to the new
landscape. This has caused them to exit businesses such as
proprietary trading, rejig their corporate structures to make them
safer and focus more on clients' needs. While tearing up Dodd-Frank
would seem to unshackle banks, starting with a new regulatory
playbook would upend their new business models and divert
management.
One of the biggest concerns for banks is that things don't get
worse. "The first thing I would ask for is nothing new, no new
rules," Citigroup Inc. finance chief John Gerspach said at the
conference. "If you haven't figured out yet how all the existing
rules work together, don't put on anything else."
Banks acknowledge benefits to the new rules, noting they have
helped improve the way firms manage risks and view their
businesses. U.S. bankers have also said that having been forced to
hold more capital, and build it quickly after the financial crisis,
made their firms far stronger than troubled European peers.
So what would the big banks like to see changed?
Stress Tests -- These annual exercises conducted by the Federal
Reserve have become hugely important because they govern the amount
of capital banks can return to shareholders, either through
buybacks or dividends.
Banks want these to be based more on objective criteria and they
want to have more of a view into the testing process and the Fed's
decision-making. And they should take less time and money to comply
with, bankers say.
Bill Demchak, CEO of PNC Financial Services Group Inc., said his
bank could theoretically get all the benefits of the stress-testing
process with "60% of the effort." He said that to comply with the
tests, "you bring the place to a grinding halt once a year."
The Volcker Rule -- Banks say they aren't eager to get back into
the business of speculating on market moves using their own balance
sheets. But they want the process around the Volcker Rule to be
less burdensome and administered by fewer than five agencies.
Changes in this area could "probably make it easier to make
markets" and improve liquidity, likely benefiting investors and
other issuers, said Mr. Dimon.
"You have active market-marking in lumber, rebar, chicken, pork,
cotton; we need it in financial instruments, it's not different,"
he said. "I do think a little more liquidity could be good."
Mr. Gerspach said Citigroup would like less paperwork. "We don't
want to do proprietary trading," he said. "But I also would love to
work with regulators to lessen the burden of proving that we're not
engaging in proprietary trading."
Capital and Liquidity -- Banks say there are so many new rules
relating to so many areas of their balance sheets that they too
often run the risk of working against each other. And it isn't
clear when enough capital really is enough.
Wells Fargo chief Timothy Sloan cited differences between rules
about how much capital a bank must hold and the amount of liquid
assets a firm has to keep on hand. The intersections of these
rules, bankers argue, hampers lending.
Bankers would also like more clarity around how much capital is
enough for banks. Regulators have applied various capital
surcharges to the biggest banks and these can change as regulations
evolve.
"It's getting certainty around the ability to have access to
your capital return once you've met all the hurdles and whether
those hurdles move up or down because of various people's point of
view," said Bank of America Corp. chief Brian Moynihan.
J.P. Morgan's Mr. Dimon said that regulators' authority should
be "cut back a little bit. It should be more prescriptive in
exactly what they're trying to accomplish."
For all that, bankers are taking a wait-and-see stance before
making any big changes to their businesses. "I think the difference
going into 2017 is that we do have hope," Citigroup's Mr. Gerspach
said. "But...we can't build a plan on hope."
This article was available on Pro Financial Regulation first,
before being published to wsj.com. Separate subscription required
for Pro Financial Regulation; more information here.
Write to Christina Rexrode at christina.rexrode@wsj.com and
Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
December 08, 2016 09:15 ET (14:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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