President Trump, US banking regulations and China’s internet giants
US banking regulations seem set for profound change as lawmakers consider whether to pass the Financial Choice Act into law. Advocates argue that the 2010 Dodd-Frank Law currently in place was created in the heat of the post-crisis moment and left bankers in the US facing a confusing and costly thicket of regulation. Among other things, this lobby wants to undercut the powers of the Consumer Finance Protection Bureau and introduce regulatory exemption for big banks. Opponents meanwhile argue that banks are in a unique position relative to the economy and that that position comes with an additional and unavoidable burden if catastrophes such as 2008 are to be avoided. A Republican-controlled lower house passed the bill onto the senate on 8 June. Before a final vote, detailed testimony from regulators is being considered by the Senate Banking Committee, with the Volcker Rule — banning proprietary trading by commercial banks — one of the key discussion points. Reuters observes that the rule as we know it seems certain to change: “Officials from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) said they were looking at ways to simplify the Volcker Rule, which prevents banks from making speculative bets with their own money. The possible steps included exempting small banks from having to comply with it.”
The current OCC chief, Keith Noreika, may only be in an acting capacity, but, having been installed by President Trump, he shares Treasury Secretary Mnuchin’s view that the current regulations are harming business and has a list of 17 reform proposals, including reducing the number of banks subject to stress tests. Supervision arrangements too should be reconsidered, Mr Noreika argues: “in most cases the depository institution and the holding company have different supervisors. Smaller institutions where the depository institution makes up the bulk of the assets in the holding company do not engage in the expansive activities that give rise to the types of complexity and interconnectedness that raise macro-prudential concerns (such as resolvability). Requiring these institutions to respond to two supervisors is inefficient, redundant, and burdensome on the institution.” [Testimonies may be read in full on the committee’s website.]
“The services already being provided by China’s internet giants are a template for what will become possible in Europe under the revised Payments Services Directive, PSD2,” writes David Hickey for Lafferty News this week. “The average adult has seven current accounts and five debit cards. Because of this, Chinese consumers have a constant need to move money around. Alipay and Tencent allow them to manage this on a single platform.” The net result is that alternative payments may now be encroaching on card payments in the country, a curious development given that cards have seen such remarkable growth since the Millennium. Indeed, China is now the biggest cards market in the world by some margin.