| President Donald Trump’s review of post-crisis banking rules could sound the death knell for new global standards now being finalized and rip apart a common approach to regulating international lenders, bankers and regulators said.
Central banks and watchdogs around the world have spent the past eight years drawing up regulation aimed at preventing a repeat of the 2007-2009 financial crisis, but there are fears that project could unravel after Trump said he wants the U.S. to row back on capital rules.
Trump’s order for a regulatory review to overcome what he sees as obstacles to lending came as banking watchdogs were trying to complete the final piece of global capital requirements, known as Basel III.
Given that the United States wants to shrink the banking rule book, there are doubts about whether the Basel rules can make it over the finishing line next month if they don’t have backing from the United States.
Without support from the world’s biggest capital market, other countries would be less willing to commit too.
The core aim of the outstanding part of Basel III that regulators are working on – dubbed Basel IV by critical banks who worry about more stringent capital requirements – is to impose more consistency into how banks calculate the amount of capital they hold against risky assets like loans.
JPMorgan CEO Jamie Dimon said in the aftermath of the financial crisis that European rivals had been “a lot more aggressive” than American banks in calculating capital, meaning they were holding less.
European policymakers have rejected that criticism, but their region’s banks have been lobbying against the remaining Basel rules, saying they would force them to increase significantly the amount of capital they need to hold.
If the United States fails to approve the completion of Basel III, the perceived problem that European banks get away with holding less capital than U.S. lenders may not be properly tackled, a source involved in the negotiations said.
“It’s in the interests of American banks to get this done,” the source said.
Others are less optimistic that a deal can now be done after Trump’s intervention.
“It’s going to delay completing Basel III, and perhaps lead to it not being concluded,” an adviser to banks said on condition of anonymity.
“I do fear that Basel IV is doomed,” a banking industry official added.
There are headwinds from elsewhere, too.
Patrick McHenry, Republican vice chairman of the House financial services committee, fired a warning shot at Federal Reserve Governor Janet Yellen about the Basel talks in a letter dated Jan. 31, ahead of Trump’s executive order.
The Fed must “cease” all attempts to negotiate binding standards “burdening American business” until the Trump Administration has had the opportunity to nominate officials that prioritize “America’s best interests,” McHenry said.
While lawmakers often call on regulators to ease pressure on firms, regulators said Trump’s intervention in banking rules gives more clout to McHenry’s warning.
The Basel Committee declined to comment.
