Adair Turner, who chaired the FSA – the predecessor to the UK’s Financial Conduct Authority – said on November 16 that he would be “very concerned” if the US showed intent to revisit or roll back on reforms that were “at the core” of international efforts to create a more resilient global banking system.
He said: “Tighter controls of capital, and particularly capital as it relates to trading book activity, [have been] agreed on at global level… there should be no rollback from that.”
Jean-Claude Trichet, the former president of the European Central Bank, said it was “really important” for the international financial services community to retain a consensus on standards at the global level following the US elections.
Trichet and Turner were speaking at an event hosted by the Group of Thirty, a not-for-profit international body whose members include senior regulators and executives at the largest global financial institutions, central banks heads and academics.
Trump stated his intention to suspend all incoming financial reforms, in the run-up to the US presidential elections. He also proposed eliminating the Dodd-Frank Act, which has been in place since 2013 and has overhauled US derivatives markets.
At 2,300 pages, the legislation has been criticised as being overly complex. Reversing it, however, would mean tilting the US away from measures agreed by all the G20 countries in the wake of the financial crisis requiring swaps to be cleared, reported and traded on electronic platforms where appropriate.
Trump’s victory in the November 8 election prompted concerns that his ‘America First’ approach would encourage other countries to become less helpful on setting standards at an international level.
Paul Sharma, a former deputy head of the Prudential Regulation Authority and now at consulting firm Alvarez & Marsal, told Financial News: “The typical approach of setting standards with your own national interests in mind but the global good as the end goal has already been significantly weakened [post-Brexit] and is now further called into question [by Trump’s win].”
Trichet said the Dodd-Frank Act went “far away from the global discussion” in parts, so there might be an opportunity for discussion on its US-specific aspects.
The Dodd-Frank Act implemented the Volcker Rule, which aimed to restore public confidence in the financial services sector by banning US-based banks and non-bank financial companies from participating in risky proprietary trading activities and sponsoring or owning private equity funds and hedge funds.
UK reforms implemented around the same time had the same goal of shoring up the financial system, but took a markedly different approach. The UK’s Volcker equivalent, put forward by John Vickers, required UK-based banks to ring-fence their retail banking activities from their wholesale banks and also took steps to improve banks’ ability to absorb losses by implementing new capital requirements.
Turner said “a slight relook at the details of Dodd-Frank within the US” wasn’t “vital” but “could be argued for” and wouldn’t “threaten international stability”. However, he reiterated that international agreements “must not be challenged”.
He also said Trump’s focus seemed to have been on reviewing reforms that had already been implemented in the US and that it would be “very unfortunate” if Trump instigated any “significant rollback on regulation introduced over the last year”.
Trichet is the current chair of the G30, while Turner is chair of the G30 working group on shadow banking.