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“America First” Financial Regulation?

LONDON – As US President Trump struggles to staff his administration with sympathizers who will help transpose tweets into policy, the exodus of Obama appointees from the federal government and other agencies continues. For the financial world, one of the most significant departures was that of Daniel Tarullo, the Federal Reserve governor who has led its work on financial regulation for the last seven years.

It would be a stretch to say that Tarullo has been universally popular in the banking community. He led the charge in arguing for much higher capital ratios, in the United States and elsewhere. He was a tough negotiator, with a well-tuned instinct for spotting special pleading by financial firms. But crocodile tears will be shed in Europe to mark his resignation. European banks, and even their regulators, were concerned by his enthusiastic advocacy of even tougher standards in Basel 3.5 (or Basel 4, as bankers like to call it), which would, if implemented in the form favored by the US, require further substantial capital increases for Europe’s banks in particular. In his absence, these proposals’ fate is uncertain.

But Tarullo has also been an enthusiastic promoter of international regulatory cooperation, with the frequent flyer miles to prove it. For some years, he has chaired the Financial Stability Board’s little-known but important Standing Committee on Supervisory and Regulatory Cooperation. His commitment to working with colleagues in international bodies like the FSB and the Basel Committee on Banking Supervision, to reach global regulatory agreements enabling banks to compete on a level playing field, has never been in doubt.

Already, some of those who criticized him most vocally in the past are anxious about his departure. Who will succeed him? The 2010 Dodd-Frank Act created a vice-chair position on the Federal Reserve Board – which has never been filled – to lead the Fed’s work on regulation. Will that appointee, whom Trump now needs to select, be as committed as Tarullo to an international approach? Or will his principal task be to build a regulatory wall, protecting US banks from global rules?