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(Bloomberg) – Wall Street may soon see one of the most important successes of the Trump era, with regulators considering eliminating a rule that would require banks to set aside billions of dollars for swap transactions, people familiar with the subject.
The issue is a requirement approved under the Obama administration that required lenders to record tens of billions of dollars in margin when trading derivatives with their own affiliates. Industry lobbyists have long argued that demand, stemming from the 2010 Dodd-Frank Act, is redundant and places US banks in a competitive competitive position with foreign rivals.
Banks now seem about to succeed. The Federal Deposit Insurance Corp. will hold a public meeting Tuesday to propose to eliminate the margin requirement, said two people informed of the plan. Other agencies, including the Federal Reserve and the Office of the Money Monitor, should also recommend removing the rule, said the people who asked not to be named, the proposal was not disclosed publicly.
The FDIC announced last week that its board would meet on Sept. 17 to decide on a swap margin proposal without giving further details.
Loose leash
This decision is the latest sign of how, little by little, watchdogs appointed by President Donald Trump are loosening the leash imposed on banks after the 2008 financial crisis. Regulators have already made progress in easing regulatory requirements. stress tests and revising the Volcker rule, a historical constraint that prevented banks from making dangerous market moves with their own capital.
Fed and OCC spokesmen declined to comment and the FDIC did not immediately respond to a request for comment.
Swap transactions – while largely unregulated – magnified the financial crisis. Watchdogs reacted by implementing dozens of new rules. Margin registration is intended to minimize the losses of an enterprise in the event of default by a counterparty.
Under President Barack Obama, regulators saw the importance of requiring a margin for inter-subsidiary transactions to protect the banking subsidiaries that manage customer deposits. But current regulators argue that demand is unnecessary, saying other rules already address potential risks associated with such transactions.
Banking lobby
Margin demand, put in place in 2015, has blocked $ 39.4 billion, according to industry estimates. This has prompted major swap dealers, such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., to make eliminating this rule a lobbying priority.
It will probably take months before regulators remove the margin requirement. This is because, once the FDIC and other agencies have published their proposals, the public will have the opportunity to submit comments before a final rule is put in place.
Republican lawmakers have supported the banks on this issue. Some Democrats in the House have also supported the change, saying in a June letter to the regulators that they should allow lenders to release "a significant and growing amount of unencumbered and unusable guarantees".
This potentially puts them at odds with the chair of the House Financial Services Committee, Maxine Waters, who has argued out loud that it would be wrong to abandon the post-crisis rules that were reinforcing bank security.
–With the assistance of Ben Bain.
To contact the reporter on this story: Jesse Hamilton in Washington at [email protected]
To contact the editors in charge of this story: Jesse Westbrook at [email protected], Gregory Mott
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© 2019 Bloomberg L.P.
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