Downplaying Trump retrenchment, global regulator voices confidence in new Basel pact

Image Credit

12 April 2017. By Neil Roland.

Jaime Caruana, general manager of the Bank of International Settlements, played down prospects that the Trump administration would retrench on global financial regulation and impede an approaching Basel III revision.

Asked in a public interview about President Trump's financial deregulation plans, the influential global banking official said media reports suggest possible changes only in parts of the Dodd-Frank Act and in community bank relief.

"They do not seem to be about revoking the global consensus on financial regulation or international standards, which are minimum standards and continue to play an important role by leveling the playing field and improving the efficiency and safety of the global financial system," Caruana said in Germany on Tuesday.

Asked about the vulnerability of the world economy to another crisis, he said banks are "much better off" now than they were during the 2007-2008 crisis.

"At the same time, though, there are risks, and there is absolutely no reason to be less on one's guard or to turn back the wheel of financial regulation," Caruana said. "I am therefore also confident that the Basel Committee on Banking Supervision will soon conclude the negotiations on Basel III."

The talks have previously been postponed because of uncertainty about the Trump administration's stance.

Basel III changes

Caruana reports directly to the board of Switzerland-based BIS, hub for the world's central banks. Board members include US Federal Reserve Chair Janet Yellen. He has headed the Basel committee, made up of banking regulators.

Negotiators have been trying to agree on Basel III changes that will tighten standards on use of internal risk models to set capital requirements.

A sticking point has been the extent to which these models' estimates of risks can be compared with those produced by standardized formulas set by regulators. A compromise considered in January proposed to start with 55 percent in 2021 and rise in stages to 75 percent in 2025.

Trump, speaking to corporate chief executives, said earlier this week he was planning a "major haircut" for Dodd-Frank. "For the bankers in the room, they'll be very happy because we're really doing a major streamlining and perhaps elimination, and replacing it with something else," he said.

Receive MLex Editor's Picks in Your Inbox

Complete this form to receive emails from MLex with selected highlights from our global coverage of regulatory risk and opportunity, as well as upcoming events, special reports and exclusive interviews.