WEBVTT - Missteps Hinder Trump’s Push to Ease Wall Street Rules

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<v Speaker 1>Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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<v Speaker 1>day we bring you insight and analysis into the most

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<v Speaker 1>important legal news of the day. You can find more

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<v Speaker 1>episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud

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<v Speaker 1>and on Bloomberg dot com slash podcasts. Since his first

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<v Speaker 1>days in office, President Trump has repeatedly vowed to loosen

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<v Speaker 1>the leash on Wall Street with less regulations, But some

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<v Speaker 1>of the regulator's most meaningful efforts to revamp post crisis

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<v Speaker 1>constraints on big banks are running into problems. Joining me

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<v Speaker 1>as Robert Hockett, a professor at Cornell Law School, Bob,

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<v Speaker 1>let's begin with the Vulgar Rule, which restricts banks from

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<v Speaker 1>making risky market bets with their own money. Federal agencies

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<v Speaker 1>rushed to rewrite it, issued an overhaul plan. Last may

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<v Speaker 1>tell us about Vulgar two point oh. So the Vulcar

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<v Speaker 1>case is actually quite interesting. On the one hand, I

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<v Speaker 1>think it's sort of maybe best to look at this

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<v Speaker 1>sort of poetic justice and two distinct ways. The first

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<v Speaker 1>way is that you might remember the original knock on

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<v Speaker 1>the Vocal rule itself was that it was sort of

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<v Speaker 1>too clever by half, that something like Glass Eagle was

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<v Speaker 1>much more effective, just because it was so much simpler,

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<v Speaker 1>more easily administered, and more easily complied. With Volker trying

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<v Speaker 1>to sort of get things a little bit more precise, right,

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<v Speaker 1>to try to retain as much of the legitimate market

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<v Speaker 1>making and hedging activity as possible while still screening out

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<v Speaker 1>the so called speculative stuff that required a great deal

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<v Speaker 1>of tinkering. And one way then of looking at what's

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<v Speaker 1>going on now as they try to redo it is that, well,

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<v Speaker 1>you know, you're working on something that was already quite complicated,

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<v Speaker 1>and so the work on it is quite complicated as well.

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<v Speaker 1>That's the first sense in which this product justice. The

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<v Speaker 1>second is this, you know, Mr Trump of course campaigned

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<v Speaker 1>on a kind of anti Wall Street, pro industrial renewal

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<v Speaker 1>sort of platform, and of course it's been anything but

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<v Speaker 1>since he took office, right, he seems to be all

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<v Speaker 1>about deregulating Wall Street and doing very little for industry

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<v Speaker 1>as far as I can tell. And so you know,

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<v Speaker 1>here we are. He's trying then to you know, kind

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<v Speaker 1>of take the leash off, but he's bungling this just

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<v Speaker 1>as much as he seems to have bungled infrastructure and reindustrialization.

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<v Speaker 1>So I guess there's a kind of poetic justice in

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<v Speaker 1>that too. He's basically being forced to comply with his

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<v Speaker 1>campaign promises, which work course not to deregulate Wall Street

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<v Speaker 1>further to reregulate it. What is in the Vulcar reproposal

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<v Speaker 1>that makes it unacceptable to much of the banking community.

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<v Speaker 1>I think it's basically that they're still having difficulty coming

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<v Speaker 1>up with a sort of easily administered, easily complied with

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<v Speaker 1>definition of legitimate hedging and market making activity on the

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<v Speaker 1>one hand, as distinguished from not so legitimate purely speculative

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<v Speaker 1>activity on the other hand. Right, so they're trying to

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<v Speaker 1>kind of continue sort of with the spirit of Vulcar,

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<v Speaker 1>but maybe to allow a little bit more trading than

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<v Speaker 1>Vulcar in its sort of one point oh rendition to

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<v Speaker 1>continue with your metaphor was allowing. But that turns out

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<v Speaker 1>to be quite difficult to do for the very same

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<v Speaker 1>reasons essentially that Volker one point oh was difficult to do.

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<v Speaker 1>Another key proposal from Trump regulators that hit a stumbling

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<v Speaker 1>luck as well would revise what's known as the leverage

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<v Speaker 1>ratio rule. You're laughing, tell us what happened? With that. Well,

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<v Speaker 1>this one, this one's funnier than ever. I mean, you know,

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<v Speaker 1>there's a sort of a certain sort of Keystone comps

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<v Speaker 1>quality right to the case with the vulcal rule, but

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<v Speaker 1>it's even more Keystone Cops when it comes to the

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<v Speaker 1>leverage ratio. They left out the f d i C

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<v Speaker 1>in the proposed rulemaking, right, So basically it was just

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<v Speaker 1>the o c C in the fed that engaged in

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<v Speaker 1>the sort of new rulemaking or the new sort of

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<v Speaker 1>formulation of the rule, basically because the fd i C

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<v Speaker 1>was still being run by Obama leftovers right when they

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<v Speaker 1>formulated the rule. The problem with that is that the

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<v Speaker 1>f d i C A is the principal capital regulator, right,

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<v Speaker 1>so it's a little bit you know like sort of

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<v Speaker 1>changing the local traffic laws without you know, notifying the

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<v Speaker 1>local police. Right. It's just makes no sense at all.

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<v Speaker 1>So the FDC is being asked to sort of approve

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<v Speaker 1>or sign off. But of course the fd I S

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<v Speaker 1>has to do its own analysis on an the sort

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<v Speaker 1>of proposed rule and has to do its own proposing

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<v Speaker 1>to the public and to take comment. You know, the

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<v Speaker 1>notice and comment period seeking input from the public is

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<v Speaker 1>something that the f d i C also has to

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<v Speaker 1>go through, so it can't just sign off on what

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<v Speaker 1>the FED in the o CC have given it, particularly

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<v Speaker 1>given it is again the primary capital regulators, so they're

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<v Speaker 1>gonna have to go back to the drawing board on

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<v Speaker 1>this one. So it's another case of total total bungling.

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<v Speaker 1>The time one obviously is moving up. But will delays

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<v Speaker 1>have any effect besides trying bankers patients, Yeah, I think

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<v Speaker 1>they will. I mean, so it takes a while to

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<v Speaker 1>go through these rulemakings, right, and that's all thanks to

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<v Speaker 1>Republican legislation in the past that tries to sort of

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<v Speaker 1>limit the speed with which federal administrative agencies can do

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<v Speaker 1>things right, So it's a fairly lengthy process that's involved

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<v Speaker 1>in any kind of rule change. That's one reason it

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<v Speaker 1>took so many years to implement the Dog Frank Statute itself. Right.

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<v Speaker 1>The regulations under that statute took a long time to

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<v Speaker 1>promulgate because of all of these restrictions that Republicans long ago.

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<v Speaker 1>But I'm on administry of agencies when it comes to regulating.

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<v Speaker 1>So now it's sort of again more poetic justice is

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<v Speaker 1>sort of coming back to bite them. It's taking at

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<v Speaker 1>least as long to redo these things, and of course

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<v Speaker 1>what that means in turn is that we're going to

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<v Speaker 1>be well into the elect le season, I think, before

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<v Speaker 1>they can come up with anything. And for that reason,

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<v Speaker 1>I think in a way those who are pro regulation

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<v Speaker 1>might actually be celebrating now that we sort of dodged

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<v Speaker 1>a bullet. What winds has the financial industry not under Trump.

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<v Speaker 1>So there's several um. One of course is you know,

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<v Speaker 1>we sort of really began right away with getting a

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<v Speaker 1>buy on the so called fiduciary rule when it comes

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<v Speaker 1>to pension fund management, which of course took everybody by

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<v Speaker 1>surprise in early because again Trump had campaigned in a

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<v Speaker 1>kind of pro pension fund, anti Wall Street sort of platform,

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<v Speaker 1>and then he did a complete about face upon taking office.

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<v Speaker 1>So that was a bit of a win for them, basically,

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<v Speaker 1>you know, sort of overturning or sidelining the Department of

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<v Speaker 1>Labor in its attempt to impose or keep imposing with

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<v Speaker 1>the Duchy Rule. It also, of course got the changes

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<v Speaker 1>that Congress itself has enacted over the last year or

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<v Speaker 1>two to sort of lighten the load. Those were legislative victories.

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<v Speaker 1>But again the problem that the face now is that

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<v Speaker 1>regulations have to be changed under those legislative changes, and

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<v Speaker 1>that's what takes longer. So they have a kind of

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<v Speaker 1>paper victory in the form of statutory change, but they

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<v Speaker 1>don't have a victory so much on the ground until

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<v Speaker 1>actual regulations are developed and then implemented, and that's what

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<v Speaker 1>takes longer. Again, ironically, thanks to Republican actions long ago

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<v Speaker 1>taken to sort of slow down the rate at which

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<v Speaker 1>agencies can do what they do. Bob with the e

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<v Speaker 1>p A, a lot of its new regulations, new rules

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<v Speaker 1>are challenged in court because the PA didn't follow what

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<v Speaker 1>they were supposed to do the steps one to three.

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<v Speaker 1>Is that what's happening with the financial regulators or is

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<v Speaker 1>it something different? At this point it's something different. Um,

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<v Speaker 1>it's it's basically, I mean, they have to worry about

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<v Speaker 1>litigation if they don't jump through all the hoops that

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<v Speaker 1>Congress requires them to jump through, of course, but at

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<v Speaker 1>this point it's just it's the hoop jumping itself that's

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<v Speaker 1>taking the time. The other thing that's sort of slowing

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<v Speaker 1>things down is again sort of ironic. So this is

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<v Speaker 1>the third set of ironies for you. The set is

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<v Speaker 1>of course quite busy at the moment trying to implement

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<v Speaker 1>or develop rules that are designed to relax things even

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<v Speaker 1>further for yet another class of institutions that the Republican

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<v Speaker 1>Congress showed solicitude for in the last year or two,

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<v Speaker 1>and that's the so called community banks, the kind of

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<v Speaker 1>mid size banks that have been getting a bit of

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<v Speaker 1>regulatory relief over the last year or two UM. And

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<v Speaker 1>of course the FETE is now developing rules under that

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<v Speaker 1>regulatory relief that was satutorially determined or or legislated. And

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<v Speaker 1>that's got that's sticking up a lot of its time

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<v Speaker 1>as well. That's Bob Hockett. He's a professor at Cornell

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<v Speaker 1>Law School. Thanks for listening to the Bloomberg Law Podcast.

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<v Speaker 1>You can subscribe and listen to the show on Apple Podcasts, SoundCloud,

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<v Speaker 1>and on Bloomberg dot com slash podcast. I'm June Brolso.

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<v Speaker 1>This is Bloomberg