Wall Street May Get $40 Billion Reprieve From Trump Regulators
Comment of the Day

September 17 2019

Commentary by Eoin Treacy

Wall Street May Get $40 Billion Reprieve From Trump Regulators

This article by Jesse Hamilton for Bloomberg may be of interest to subscribers. Here is a section:

The margin demand, implemented in 2015, has tied up $39.4 billion, according to industry estimates. That’s prompted major swap dealers, such as Goldman Sachs Group Inc., JPMorgan Chase & Co. and Citigroup Inc., to make the rule’s elimination a lobbying priority.

It would likely be months before regulators scrap the margin requirement. That’s because once the FDIC and other agencies issue their proposals, the public will have an opportunity to submit comments before a final rule could be put in place.

Republican lawmakers have supported banks on the issue. Some House Democrats have also backed the change, telling regulators in a June letter that they should allow lenders to free up the “large and increasing amount of unusable, locked-up collateral.”

Eoin Treacy's view

In the aftermath of a crisis, regulations are tightening because of the vindictive wish to punish wrong doing but also to ensure the same mistakes are not repeated. However, the result is less risk taking. That does not have much of an effect in the early stages of a recovery because opportunities are plentiful. However, as an expansion matures it depends on the availability of ever more capital and credit to sustain itself. That leads to quite reasonable requests to relax strictures that are now deemed to be overly onerous. Leverage therefore increases, greater risks are taken and the trend persists for a while longer.

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