Missteps Hinder Trump’s Push to Ease Wall Street Rules

constraints on big banks are running into problems. Joining me as Robert Hockett, a professor at Cornell Law School, Bob, let's begin with the Vulgar Rule, which restricts banks from making risky market bets with their own money. Federal agencies rushed to rewrite it, issued an overhaul plan. Last may tell us about Vulgar two point oh. So the Vulcar case is actually quite interesting. On the one hand, I think it's sort of maybe best to look at this

sort of poetic justice and two distinct ways. The first way is that you might remember the original knock on the Vocal rule itself was that it was sort of too clever by half, that something like Glass Eagle was much more effective, just because it was so much simpler,

more easily administered, and more easily complied. With Volker trying to sort of get things a little bit more precise, right, to try to retain as much of the legitimate market making and hedging activity as possible while still screening out the so called speculative stuff that required a great deal

of tinkering. And one way then of looking at what's going on now as they try to redo it is that, well, you know, you're working on something that was already quite complicated, and so the work on it is quite complicated as well.

That's the first sense in which this product justice. The second is this, you know, Mr Trump of course campaigned on a kind of anti Wall Street, pro industrial renewal sort of platform, and of course it's been anything but since he took office, right, he seems to be all about deregulating Wall Street and doing very little for industry as far as I can tell. And so you know,

here we are. He's trying then to you know, kind of take the leash off, but he's bungling this just as much as he seems to have bungled infrastructure and reindustrialization. So I guess there's a kind of poetic justice in that too. He's basically being forced to comply with his campaign promises, which work course not to deregulate Wall Street further to reregulate it. What is in the Vulcar reproposal that makes it unacceptable to much of the banking community.

I think it's basically that they're still having difficulty coming up with a sort of easily administered, easily complied with definition of legitimate hedging and market making activity on the one hand, as distinguished from not so legitimate purely speculative activity on the other hand. Right, so they're trying to kind of continue sort of with the spirit of Vulcar, but maybe to allow a little bit more trading than Vulcar in its sort of one point oh rendition to

continue with your metaphor was allowing. But that turns out to be quite difficult to do for the very same reasons essentially that Volker one point oh was difficult to do. Another key proposal from Trump regulators that hit a stumbling luck as well would revise what's known as the leverage ratio rule. You're laughing, tell us what happened? With that. Well,

this one, this one's funnier than ever. I mean, you know, there's a sort of a certain sort of Keystone comps quality right to the case with the vulcal rule, but it's even more Keystone Cops when it comes to the

leverage ratio. They left out the f d i C in the proposed rulemaking, right, So basically it was just the o c C in the fed that engaged in the sort of new rulemaking or the new sort of formulation of the rule, basically because the fd i C was still being run by Obama leftovers right when they

formulated the rule. The problem with that is that the f d i C A is the principal capital regulator, right, so it's a little bit you know like sort of changing the local traffic laws without you know, notifying the local police. Right. It's just makes no sense at all. So the FDC is being asked to sort of approve or sign off. But of course the fd I S has to do its own analysis on an the sort of proposed rule and has to do its own proposing

to the public and to take comment. You know, the notice and comment period seeking input from the public is something that the f d i C also has to go through, so it can't just sign off on what the FED in the o CC have given it, particularly given it is again the primary capital regulators, so they're gonna have to go back to the drawing board on this one. So it's another case of total total bungling.

The time one obviously is moving up. But will delays have any effect besides trying bankers patients, Yeah, I think they will. I mean, so it takes a while to go through these rulemakings, right, and that's all thanks to Republican legislation in the past that tries to sort of limit the speed with which federal administrative agencies can do things right, So it's a fairly lengthy process that's involved in any kind of rule change. That's one reason it

took so many years to implement the Dog Frank Statute itself. Right. The regulations under that statute took a long time to promulgate because of all of these restrictions that Republicans long ago. But I'm on administry of agencies when it comes to regulating. So now it's sort of again more poetic justice is

sort of coming back to bite them. It's taking at least as long to redo these things, and of course what that means in turn is that we're going to be well into the elect le season, I think, before they can come up with anything. And for that reason, I think in a way those who are pro regulation might actually be celebrating now that we sort of dodged a bullet. What winds has the financial industry not under Trump.

So there's several um. One of course is you know, we sort of really began right away with getting a buy on the so called fiduciary rule when it comes to pension fund management, which of course took everybody by surprise in early because again Trump had campaigned in a kind of pro pension fund, anti Wall Street sort of platform, and then he did a complete about face upon taking office.

So that was a bit of a win for them, basically, you know, sort of overturning or sidelining the Department of Labor in its attempt to impose or keep imposing with the Duchy Rule. It also, of course got the changes that Congress itself has enacted over the last year or two to sort of lighten the load. Those were legislative victories. But again the problem that the face now is that regulations have to be changed under those legislative changes, and

that's what takes longer. So they have a kind of paper victory in the form of statutory change, but they don't have a victory so much on the ground until actual regulations are developed and then implemented, and that's what takes longer. Again, ironically, thanks to Republican actions long ago taken to sort of slow down the rate at which

agencies can do what they do. Bob with the e p A, a lot of its new regulations, new rules are challenged in court because the PA didn't follow what they were supposed to do the steps one to three. Is that what's happening with the financial regulators or is

it something different? At this point it's something different. Um, it's it's basically, I mean, they have to worry about litigation if they don't jump through all the hoops that Congress requires them to jump through, of course, but at this point it's just it's the hoop jumping itself that's taking the time. The other thing that's sort of slowing things down is again sort of ironic. So this is

the third set of ironies for you. The set is of course quite busy at the moment trying to implement or develop rules that are designed to relax things even further for yet another class of institutions that the Republican Congress showed solicitude for in the last year or two, and that's the so called community banks, the kind of mid size banks that have been getting a bit of regulatory relief over the last year or two UM. And of course the FETE is now developing rules under that

regulatory relief that was satutorially determined or or legislated. And that's got that's sticking up a lot of its time as well. That's Bob Hockett. He's a professor at Cornell Law School. Thanks for listening to the Bloomberg Law Podcast. You can subscribe and listen to the show on Apple Podcasts, SoundCloud, and on Bloomberg dot com slash podcast. I'm June Brolso. This is Bloomberg