The nomination for the head of a financial regulator in Washington is the latest Trump pick of a federal agency that underlines his commitment to making changes to the Dodd-Frank financial reform act.
Financial regulation changes brought about by Dodd-Frank were the most thoroughgoing since the Great Depression, and though the Act has been credited with stabilising Wall Street it is concurrently blamed for restricting American growth.
Trump’s February 3rd executive order requesting an appraisal of existing financial regulation was signed in the spirit of chipping away at Dodd-Frank, and was welcomed by a substantial number of Republicans who point to the inability of banks to lend to small businesses as one of the reasons Dodd-Frank needs amending.
J. Christopher Giancarlo, the nomination for chairman of the Commodity Future Trading Commission (CFTC), is known to be fundamentally in favour of Dodd-Frank whilst expressing dissatisfaction with specific elements. This attitude is broadly similar to that of the Trump administration, despite the president’s vow to ‘do a big number’ on the Act.
It is thought that Giancarlo’s impending permanent tenure at the CFTC will help Trump deliver on his promise. Unable to dissolve Dodd-Frank unilaterally, the president knows that he would probably lack the required number of votes in Congress to overhaul Dodd-Frank.
In addition to these two hurdles, the Act has become so thoroughly embedded in the US financial system that any significant changes would have to be processed through the bureaucratic machinery of government, taking time and costing money.
A fourth way
Trump’s appointment of Giancarlo points to a fourth way. A lawyer and businessman by trade, Giancarlo has been a commissioner at the CFTC since 2014, along with interim head of the agency since Trump’s inauguration.
He is known to be critical of some areas of Dodd-Frank, and though Trump and Giancarlo are not exactly ideological bedfellows, their shared desire to see aspects of Dodd-Frank changed will be reflected in the manner in which Giancarlo decides to operate as the CFTC chairman.
Jay Clayton, the proposed head of the Securities and Exchange Commission (SEC), is a Trump nominee in the same vein. Clayton, like Giancarlo, has not publically spoke of repealing Dodd-Frank, but both men are known to be keener on loosening financial rules rather than tightening them.
Commodity Futures Trading Commission
It’s worth considering what exactly Giancarlo will be responsible for at the CFTC. The agency virtually polices the derivatives market alongside the SEC, with the SEC having ‘security related swaps’ under its authority and the CFTC presiding over energy, agricultural and other swaps, something Giancarlo has extensive experience with having worked at a swaps brokerage.
The lack of oversight of the swaps market contributed to the financial collapse of 2008, and one of the intentions of Dodd-Frank was to make identifying high risk activity a priority for financial agencies. The CFTC was tasked with this responsibility, and so far the largest penalty it has handed out was a settlement with Deutsche Bank in 2015 worth $800 million over manipulation and false reporting of LIBOR.
Giancarlo was a commissioner at the CFTC at the time, but looking at Giancarlo’s past remarks we can get a flavour of what he intends to do if – or more likely, when – he becomes the permanent chairman.
He used a speech in 2016 to accuse the CFTC of being ‘stuck in a 20th century time warp’, and in the same speech took the opportunity to remind listeners of his criticism of the Financial Stability Oversight Council (FSOC) set up under Dodd-Frank’s auspices.
According to the New York Times Giancarlo also recently voted against a proposal to garner more information from high-trade frequency firms.
Overall, the CFTC has in Giancarlo a chairman with a balanced view of the strengths and weaknesses of Dodd-Frank, though the president will undoubtedly be eager for Giancarlo to be more of a friend to Wall Street than financial agencies were under Obama’s administration.
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