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Unedited transcript
Steven Weisman: Hello, this is Steve Weisman at the Peterson Institute for International Economics. Among the most controversial steps taken by President Trump in his first week in office was an executive order to rollback provisions of the Dodd-Frank Law, which was enacted after the financial crisis of 2008.
Today, I'm talking with Ted Truman of the Peterson Institute about the international implications of that executive order and some concerns that have been raised by moves in Congress. Ted, welcome. First, tell me what's the basis of the concerns in Congress?
Edwin Truman: Well, the basis of the concerns in Congress are that the Vice-Chairman of the House Financial Services Committee, Mr. McHenry, has written to the Fed Reserve to instruct them to stop negotiating any deal, contact foreign officials on regulations governing the financial system in the United States.
He states in his letter to Chair Yellen that these negotiations that have been going on since the crisis in 2008 in parallel with the passage of the Dodd-Frank Act have disadvantaged US financial firms and he wants it to stop.
Steven Weisman: Now, specifically, I should have said that Ted is a veteran of exactly such international negotiations when he served at the Treasury and at the Fed. But specifically he mentions the Basel III Accords, which were designed to strengthen the stability of banks. Now, he wants us to withdraw from those?
Edwin Truman: He implies that we should those standards which raise capital requirements and involve other aspects of strengthening the system that raise capital standards on all banks around the world by agreement. Where he actually is not correct is the Basel Accord as it's called. This would be replaced to previous Basel II which replaced Basel I.
The Basel Accord is an agreement that the countries involved, the authorities in the countries would seek to implement these standards, agreed standards, to their own domestic legislation and regulation. And consistent with that agreement and also consistent with Dodd-Frank of the Fed Reserve and other bank regulators in the United States have moved to implement these standards.
Steven Weisman: So he seems to in this letter which just came to light in the last couple of days. He seems to imply that there was some kind of a secret deal made among all these regulators. But I don't recall it being very secretive. In fact, we debated it here at the Institute.
Edwin Truman: It wasn't very secretive. These processes are ones which are very—on the one hand, they're very open in the sense that the decisions of the Basel Committee or the Financial Stability Board both of which are mentioned in the letter. Financial Stability Board is an overarching group that covers many so-called international standard setting bodies including the Basel Committee on banking. These were designed to cooperatively strengthen, international rules.
One thing we learned from the crisis is you can't contain financial crisis within borders. Within our border, our crisis spill over to Europe. And the European crisis spill back onto the United States. And the only way to prevent that is to have relatively common rules and standards or else a country will be affected by the weak standards in other countries. And he seems to be object to that.
But even in the case of the Dodd-Frank Law that was passed by the Congress, they asked for some things to be done. The regulations that implement Dodd-Frank were issued by the various banking and supervisory agencies for public comment. And they received voluminous public comments.
So the notion that this has all been done in secret and by global bureaucrats in foreign lands, as he put it, strikes me as not accurate and undercuts, in many respects, the kind of cooperation that we need to have a stronger, safer international financial system.
Steven Weisman: I mean President Trump, I'm sure, has won some public support by saying he wants an America First Policy. But for him that implies protectionism, raising tariffs, and also walking away from these cooperative efforts. Where will that lead?
Edwin Truman: Well, I think walking away from those cooperative efforts will lead to a breakdown in these systems. And if every country walks away, then things that happen in other countries can adversely affect things that happen in the United States. The financial system is quintessentially a system that spills across borders. You can't build walls against financial flows. You can have capital controls, but we’re moving away from that.
And so, this is an area where you need to have common rules and regulations and understandings of how we want the system to work in the interest of consumers and producers in the United States and around the world. And that's in the interest of other countries. And a safer global system, in my view, is in the interest of the United States as well. So that way it does conform with the America First proposition.
Steven Weisman: Thank you, Ted. That's great.