'America First' Creates Uncertainty Over U.S. Role on Global Financial Standards

S&P Global Market Intelligence
Written By: Joe Mantone
S&P Global Market Intelligence
Written By: Joe Mantone

The world is waiting to see how the "America first" agenda promulgated by President Donald Trump's administration affects the role the U.S. plays in advancing international financial industry standards.

Under Trump, the U.S. has made some swift decisions to exit international institutions. The State Department recently announced the withdrawal from UNESCO, the United Nations' educational, scientific and cultural organization. Trump pulled the U.S. out of negotiations for the Trans-Pacific Partnership, an international trade agreement, and the president also moved to withdraw the U.S. from the Paris climate accord.

But the administration's stance on international financial standards has been more nuanced, according to some participants at the Sibos conference in Toronto. The uncertainty over whether President Trump will loosen financial regulation has slowed progress on the Basel Committee on Banking Supervision's revisions to the way banks calculate risk, changes that have been dubbed "Basel IV."

However, since President Trump has taken office, the U.S. has helped with the shaping of some international standards, said Shaun Olson, a senior derivatives adviser for the Ontario Securities Commission. He said years-old mandates, including those around over-the-counter derivatives, are moving forward.

"It's been business as usual," he said.

But the future is more uncertain. Olson said it has become more difficult to understand which new regulations and requirements policymakers will pursue. It is also unclear if the U.S. will actually put international standards that are being developed into place because some key regulatory positions have remained vacant since the Trump administration has taken over.

"Implementation ... could be delayed if there are vacancies," Olson said.

Olson was not the only one to say the U.S. continues to advance international standards. Karla McKenna, director of market practice and standards for Citigroup Inc.'s markets and securities services, noted that the Consumer Financial Protection Bureau and the Treasury Department's Office of Financial Research have moved ahead with adopting legal entity identifiers, data similar to a barcode that can identify parties in financial transactions.

McKenna said she expects the U.S. to keep playing a role in areas that can promote global stability. "Where it makes sense to keep America's markets and the other markets safe, I'm still seeing some forward progress," McKenna said.

But the Trump administration's main goal is to generate growth in the U.S., not promote global stability, said Aaron Klein, a Brookings Institution fellow and policy director.

Klein, who worked in the Treasury Department during the Obama administration and on the U.S. Senate Committee on Banking, Housing and Urban Affairs when it was chaired by Democratic senators Paul Sarbanes and Christopher Dodd, said the U.S. previously viewed global stability and global growth as beneficial to the country in the long run.

"That core tenet is not shared by the current inhabitants in the White House," he said. "Instead, the core idea is: 'This is a global competition.'"

Klein said he believes it is only a matter of time before the U.S. starts withdrawing as a leader, and even possibly as a participant in some global forums on international financial industry standards. He expects the first moves will come subtly with the U.S. ending the promotion of new ideas and raising skepticism on the advancement of others.

However, the Trump administration could find that staying involved in global forums is the best way to support the "America first" agenda, said Jeff Bandman, who held leadership positions with the CFTC before founding consulting and advisory practice Bandman Advisors.

"There is an effort to kind of use these international forums to advocate areas where there's concerns that American interest or the ecosystem is being harmed," he said.

Bandman said an example of this came in the Treasury's recent capital markets report, which called for changing the capital treatment of centrally cleared derivatives under Basel III's supplementary leverage ratio. Bandman also noted that the CFTC has maintained its leading role in the policy standing group for the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions.

From Bandman's perspective, it seems that the U.S. is taking the stance that financial markets are interconnected, and that it is important to have an international consensus on technical issues. Still, Bandman believes leaders of regulatory bodies will have to explain to the White House why being involved in global forums is consistent with the administration's agenda.

"You do need to have a good answer on why staying engaged and advocating vigorously is in America's interest," Bandman said.