Bank regulatory push weakens, but isn't a failure


Five years have past since the financial crisis of 2008, and it should be acknowledged that the banking industry's lobbyists have been successful in shaping the once-aggressive regulatory push.

Lobbyists have scored some significant wins in terms of the long-running implementation of Dodd-Frank in key areas. A great example might be the on-going, Dodd-Frank-mandated effort to re-create the OTC derivatives markets. Banks have been able to influence the implementation in key technical areas, such that the move to central clearinghouses and SEFs and the like.

At this point, it would appear that the emerging trading structure will likely prove favorable to the big dealers. Another win was delivered recently, when banks were given a significant reprieve on the liquidity coverage ratio (LCR). They'll have four more years to meet key targets, and they'll be able to use a longer list of assets that will satisfy the requirement, including mortgage-backed securities. The additional securities, however, will be marked down more aggressively than those that would have been eligible under the original LCR, and they will only be able to count for up to 15 percent of a bank's LCR buffer.

The Washington Post notes the big picture here, writing that, "some of the proposals once considered core to a safe, post-Lehman system have been delayed and weakened, and others have been played down, at least for now, as too politically complex. In other cases, the world is heading toward a patchwork."

Still, it would be hard to argue that the system isn't safer. The progress might not have been as strong as originally intended, but the system on balance may be better off.

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