Banking’s transatlantic rift

From: POLITICO's Morning Money - Wednesday Sep 06,2023 12:01 pm
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By Zachary Warmbrodt

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QUICK FIX

In the Biden era, big U.S. banks are yearning for a bit of European-style regulation.

The grass is looking greener across the pond as the EU prepares to implement bank capital capital rules that France, Germany and other countries have watered down to shield their lenders from regulatory burdens.

“The EU is applying the requirements that it thinks are beneficial to its economy and its banks,” Financial Services Forum president and CEO Kevin Fromer told MM.

As your host reports in a new piece, it’s a disparity that you’ll hear more about in Washington over the coming months. U.S. regulators are preparing to raise bank capital requirements and are facing off against industry groups and Hill allies who want to pare back the plans. The U.S. approach is tougher than Europe's in key ways, and so the disconnect is set to become a key talking point by the opposition. Fromer, who represents JPMorgan, Bank of America and six other U.S. megabanks, is warning of “competitive inequities.”

The rift is emerging despite the fact that the U.S. and EU are working from the same global mandate — international standards hashed out at the Basel Committee on Banking Supervision in the wake of the 2008 crisis. Regulators have been trying to beef up bank capital levels to ensure that lenders have funding to operate through economic downturns without needing a new round of bailouts.

It will be tough for U.S. banks to argue that they’re going to be at a major disadvantage against EU competitors. Former FDIC Chair Sheila Bair said in an interview that a number of European banks were powerhouses prior to the global financial crisis but that now “a lot of that competition is gone.”

“It’s more about, why are they doing one thing and we’re doing the opposite?” said Bank Policy Institute president and CEO Greg Baer, whose group is launching an ad campaign to fight the U.S. rules. “Especially when what they’re doing is the right thing?”

Senate Banking Chair Sherrod Brown is pushing back against the lobbying effort. He told MM that stronger rules since the 2008 crisis have allowed the largest U.S. banks to outpace their foreign counterparts because “a safe U.S. banking system goes hand in hand with a competitive one.”

It’s unclear if complaints about international incongruity will get traction with officials at the Federal Reserve, FDIC and the OCC.

“Sitting on the Basel Committee as the U.S. regulators do, they are mindful of collegial international cooperation in part because they fear the race to the bottom resulting from a world without some cross-border norms,” Federal Financial Analytics managing partner Karen Petrou said. “But they well know that Basel sets the bar; lots of nations then do the limbo.”

It’s Wednesday (even if it feels like Tuesday) — What are we missing? Send tips: Zach Warmbrodt, Sam Sutton.

 

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STOP THE BIG-BOX BAIT AND SWITCH: Big-box retailers, led by Walmart and Target, are seeking a massive handout from Congress, paid for by consumers. Mega-retailers are trying to trick Congress into enacting harmful credit card routing legislation (S. 1838/H.R. 3881), falsely claiming that it will help small businesses. In reality, this bill transfers billions from consumers to big-box corporations while eliminating popular credit card rewards programs, weakening cybersecurity protections, and reducing access to credit. Congress: reject this Big-Box Bait and Switch. www.stopthebigboxbaitandswitch.com

 
Driving the day

The Senate votes on three Biden Fed nominees … The SEC will vote on funding for the consolidated audit trail at 10 a.m. (more on that below) … The Fed will release its Beige Book at 2 p.m.

Lew tapped for Israel post — President Joe Biden nominated former Treasury Secretary Jack Lew to serve as the next U.S. ambassador to Israel. He would succeed Tom Nides, who left the position in July.

Jefferson poised to be Fed vice chair — The Senate this morning will likely confirm Fed board member Philip Jefferson as the central bank’s No. 2 official, after advancing his nomination Tuesday night in an 83-10 procedural vote. The Senate will also vote today to extend Fed Governor Lisa Cook’s term and consider the nomination of Adriana Kugler to join the Fed board.

Trump SPAC buys time — Declan Harty reports that investors granted a last-minute lifeline to the company looking to take former President Donald Trump’s social media venture public. Shareholders handed executives another year to finish the transaction ahead of a do-or-die deadline later this week.

CFPB to pay $6M in discrimination settlement — Katy O’Donnell reports that the consumer bureau agreed to pay $6 million to resolve a discrimination lawsuit brought in 2018 by current and former agency employees. Complaints of discrimination at the CFPB date back to the Obama administration.

More Farage fallout — The WSJ reports that U.K. regulators are reviewing whether banks are being too tough on “politically exposed persons,” following a controversial move by a bank to drop Brexit campaigner Nigel Farage as a customer.

 

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Regulatory Corner

Look what the SEC dragged in — In the wake of the 2010 Flash Crash, the SEC rolled out a plan to create a "Hubble Telescope" for markets that would give regulators a clearer view of trading. Now — after more than a decade of fights — Chair Gary Gensler is taking on the most contentious debate yet around the so-called Consolidated Audit Trail: Who should pay for the CAT?

Declan reports that SEC commissioners will vote this morning on a plan from stock exchanges and FINRA, Wall Street’s self-regulatory group, to divvy up costs across Wall Street. But banks, brokers and trading shops don’t want to foot the bill for the CAT, which by next year is expected to have cost $1 billion to set up and operate.

The fight could trigger another industry lawsuit against Gensler’s SEC. Asset managers represented by the Securities Industry and Financial Markets Association told the agency on Tuesday that they are “very concerned” about escalating CAT costs.

“The industry won’t sit idly by,” American Securities Association president and CEO Chris Iacovella told MM.

Climate

Ramaswamy’s anti-ESG funds hit $1B milestone — Bloomberg reports that Strive Asset Management, an anti-activism fund company co-founded by GOP presidential candidate Vivek Ramaswamy, has crossed $1 billion in assets under management, even as ESG attacks fall flat with voters.

Crypto

A look at SBF’s life in jailSam Bankman-Fried’s lawyers have told a court that the former crypto mogul is struggling to maintain his vegan diet, running low on prescription medication and lacking sufficient internet access as he awaits trial in Brooklyn’s Metropolitan Detention Center, according to the NYT.

Bitcoin ‘apathy’ takes hold — The price of bitcoin is sinking this week, following a pre-Labor Day surge that was fueled by hopes the SEC would be forced to approve a bitcoin ETF. "This is exactly what apathy looks like," analyst Will Clemente said, according to CoinDesk.

 

A message from Electronic Payments Coalition:

CONGRESS: DON’T FALL FOR THE BIG-BOX BAIT-AND-SWITCH: Despite vigorous lobbying efforts from mega-retailers like Walmart and Target, proposed credit routing mandates (S. 1838/H.R. 3881) face steep bipartisan opposition. Consumers and small businesses don’t want to lose valuable credit card benefits or suffer from weakened cybersecurity protections– both consequences of proposed credit card routing mandates. Americans didn’t send their lawmakers to Washington to be fooled by the retail giants’ massive corporate welfare scheme--and they won’t forget those who sold out Main Street so that big-box retailers could line their pockets while consumers and small businesses suffer. Last year, Congress wisely rejected a similar Big-Box Bill, and they must do so again. Congress must protect consumers, preserve the integrity of the payment ecosystem, and reject this detrimental and unnecessary government intervention. www.stopthebigboxbaitandswitch.com

 
 

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