By Gabriel T. Rubin
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.
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)
Copyright (c) 2018 Dow Jones & Company, Inc.