The Week Ahead: May 28th

Last Week: It took a bit longer than some expected, but President Trump secured a bipartisan Dodd-Frank legislative victory last week through a partial roll-back of the 2010 law. To secure needed Democrat votes, Republicans did not completely gut the existing law as many on the right hoped they would. Instead the changes were more modest - reflecting a slight easing of regulatory burdens, rather than a complete re-write. Aaron Klein from the Brookings Institution did an excellent job outlining the realities and misconceptions of these new changes. As Mr. Klein notes:

• The Consumer Financial Protections Bureau (CFPB) was not touched; a necessary action to secure enough votes for bipartisan passage;
• This is not a repeal and replace bill, but rather a series of modifications to existing Dodd-Frank law;
• While the Bank SIFI (systemically important financial institution) threshold was raised from $50 billion to $250 billion, the Federal Reserve “retains the discretion to apply enhanced regulatory standards to any specific bank greater than $100 billion”;
• The legislation does little to address root problems behind the Equifax failure; and
• Banks now have more options available, including government debt, for their HQLA (high quality liquid assets) regulatory requirement.

For additional commentary on the effect and impact of the Dodd-Frank changes, read RealClearMarkets contributor Alex Pollock’s thoughts on the bill here.

This Week: With lawmakers on recess for Memorial Day, this week will likely be a bit slower in the world of financial regulatory affairs. The main development to watch for is the Federal Reserve meeting on proposed changes to the Dodd-Frank Volcker Rule. The Volcker rule “prohibits insured depository institutions from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.”

On Wednesday, May 30th, the Federal Reserve Board of Governors will hold a meeting on a proposed rule for public comment on the modification of the rule. Need a refresher on what’s in the rule? A 2013 Federal Reserve document outlining the provisions and details of the Volcker Rule can be found here.

Analysts from UBS Financial Services believe the proposed changes are “likely to reflect some of the recommendations (including simplifying the definition of proprietary trading and providing greater flexibility for banks to hold inventories of securities and make markets) made in a Treasury report from last June.” That report can be found here, with Volcker rule recommendations starting on page 76.