The Washington PostDemocracy Dies in Darkness

The Finance 202: Trump's Wall Street rule rollback raises 'too big to fail' alarms

with Brent D. Griffiths


Eleven years after the Lehman Brothers collapse precipitated the worst financial crisis since the Great Depression, “too big to fail” financial institutions are alive, well, and — thanks to Trump-era deregulation — getting more dangerous. 

That’s the view financial watchdog Better Markets lays out in a new report, and it’s one shared by many of the former regulators who helped write the post-crisis Wall Street rulebook. 

“The most dangerous systemic and moral hazard risks in the financial system from [too big to fail] have been increased — some significantly — and the overall resilience of the financial system in the US and globally has been reduced,” Better Markets president Dennis Kelleher writes in the report, which he is presenting today at a workshop at the New York Fed.

Kelleher, whose nonprofit group advocates tougher restrictions on the indusry, points to a slew of moves by Trump officials to ease strictures on the industry: Weakening capital requirements for big banks; watering down the stress test and living will requirements they face; allowing more risky trading; relaxing enforcement; and rolling back consumer protections, among others — and those public moves are just the “tip of the deregulatory iceberg.” 

The big banks, of course, disagree. The Financial Services Forum, which represents eight CEOs of the largest banks, argued over the summer that post-crisis rules ended the “too big to fail” problem, and with the banks on stable footing, now policymakers should “continue to work to improve efficiency, promote economic growth, and create level playing fields within the global financial system.” 

That process of paring back the rules continues today, as the Commodity Futures Trading Commission meets to finalize changes to the Volcker Rule, designed to keep banks from making certain risky bets for their own profits with their customers’ deposits. 

Former Fed chair Paul Volcker himself has spoken out against the Trump team’s push to limit the rule's reach. In a late August letter to Fed chair Jerome Powell, Volcker argued “the new rule substantially narrows the proprietary trading prohibition, enabling banks to speculate freely for their own profit with financial instruments previously under the Volcker Rule's constraints.” 

"These measures appear far afield from the regulators' stated objective of mere simplification,” he wrote, according to Politico’s Victoria Guida. 

Volcker isn’t the first former regulator to criticize the deregulation. Back in May, two of his successors atop the central bank — Ben Bernanke and Janet Yellen — and Jack Lew and Tim Geithner, both Treasury secretaries, went public with a warning about a growing systemic risk they see emerging. They coauthored a letter calling out the Trump administration’s decision to stop designating non-bank financial giants for stricter federal oversight. “Though framed as procedural changes, these amendments amount to a substantial weakening of the post-crisis reforms,” they wrote. “These changes would make it impossible to prevent the buildup of risk in financial institutions whose failure would threaten the stability of the system as a whole.”

And Daniel Tarullo, the Fed governor who spent eight years after the crisis heading up the central bank’s regulatory response, delivered a speech in May raising alarms about how the Trump team’s “low-intensity deregulation” of the financial industry could exacerbate the next meltdown. 

Kelleher in his presentation will say whether the system is safer and sounder today than in 2008 is the wrong question. “We better be better off than that!” He argues for a higher standard that assures the rules in place will keep taxpayers off the hook if another Wall Street mega-giant fails. And have the rules met that standard? “Given the actions of the Trump administration,” he writes, “the answer is an undeniable and emphatic ’no.’”


— Oil prices spike after drone attacks on Saudi oil: “Oil prices jumped on global markets Sunday night after a wave of weekend drone attacks instantly erased half of Saudi Arabia’s oil production,” my colleague Thomas Heath reports. “The attack on Saudi Arabia’s oil infrastructure immediately knocked out 5.7 million barrels — or nearly 6 percent of the 100 million barrels the world consumes per day.”

  • Oil futures jumped the most ever: “In an extraordinary start to trading, London’s Brent futures jumped almost $12 a barrel in the seconds after the open on Monday, the biggest intraday advance in dollar terms since they were launched in 1988,” Bloomberg’s Serene Cheong and Dan Murtaugh report. “On the New York Mercantile Exchange, West Texas Intermediate contracts were frozen for about two minutes after the scale of the move delayed the market open.”
  • One analyst says could signal ‘a new paradigm’: “The vulnerability of Saudi infrastructure to attacks, historically seen as a stable source of crude to the market, is a new paradigm the market will need to deal with,” Virendra Chauhan, a Singapore-based analyst at industry consultant Energy Aspects Ltd told Bloomberg. “At present, it is not known how long crude will be offline for.”
  • But experts say the long-term effects should be minimal: "...  As luck would have it, the attack came as global oil stockpiles were higher than usual, several producing countries have ample spare capacity and American oil facilities have so far been spared from a damaging hurricane season. Meanwhile, a slowing global economy has moderated energy demand," the New York Times’s Clifford Krauss and Stanley Reed report.

Trump responds: The president tweeted there is “Plenty of Oil!” later adding that possible military action could follow in response. The administration reportedly believes Iran is behind the attacks.

  • More on possible military action: “The Trump administration intensified its focus on Iran Sunday as the likely culprit behind attacks on important Saudi Arabian oil facilities over the weekend, with officials citing intelligence assessments to support the accusation and President Trump warning that he was prepared to take military action," the Times's Eric Schmitt, Farnaz Fassihi and David D. Kirkpatrick report.
  • He also promised to tap strategic reserves: “On Sunday, President Trump said via Twitter that he had authorized the release of oil from the Strategic Petroleum Reserve in a to-be-determined amount. He added that he told government agencies ‘to expedite approvals of the oil pipelines currently in the permitting process in Texas and various other States.’
  • A jump in oil prices could come at the worst time: “A jump in oil prices is likely to weigh on an already-declining global economy, one beset by the U.S. trade war with China, White House sanctions against Iran and a decade-long economic expansion that shows signs of petering out.”

Chinese economy slows. WSJ's Liyan Qi, Grace Zhu, Lin Zhu: "Economic activity in China cooled further in August, testing Beijing’s tolerance for slower growth as it seeks to ease trade tensions with the U.S. Softness was visible last month in nearly every aspect of the Chinese economy, with industrial output and retail sales data pointing to sluggish demand and low confidence among businesses and consumers. Economists had been expecting economic activity to have recovered a little from July, when it fell to its lowest level in more than a decade."



— Lawmakers eye reining Trump’s tariffs: “In Sen. Jerry Moran ’s home state of Kansas, support for [Trump] remains high. But so does anxiety among farmers and manufacturers about the economic fallout from the tariffs Mr. Trump has imposed,” the Wall Street Journal’s Lindsay Wise report.

“Mr. Moran and some other Republicans—including Sen. Chuck Grassley of Iowa, chairman of the Senate Finance Committee—are searching for ways to team up with Democrats to reassert congressional authority over the levying of tariffs. They aim to curb the type of tariff-by-tweet policy-making that has whipsawed markets and stressed U.S. businesses in recent months … Legislation reclaiming congressional trade authority isn’t likely to get far, however, in part because most Republicans are loath to challenge the president and because Senate Majority Leader Mitch McConnell has refused to bring bills to the floor without some certainty that Mr. Trump would sign them.”

— U.S. envoy takes aim at EU’s next trade chief: “The United States has fired the first warning shots at the EU's next trade commissioner before he's even taken office,” Politico’s Cristina Gonzalez and Ryan Heath report.

“Gordon Sondland, the U.S. ambassador to the EU, branded comments about [Trump] from Commissioner Phil Hogan ‘unhelpful’ and ‘very condescending.’ Speaking to POLITICO's EU Confidential podcast, Sondland warned of the dangers of ‘someone handling the EU trade portfolio whose sole approach is belligerence ... Hogan, the current European agriculture commissioner who is slated to take over the trade portfolio on November 1, told Ireland’s RTE radio last week he would do everything he could ‘to get Mr. Trump to see the error of his ways’ on trade. The veteran Irish politician said he hopes the U.S. president will “abandon some of the reckless behavior that we have seen from him in relation to his relationship with China and describing the European Union as a security risk."

— Some manufactures are defending Trump’s tariffs: “While many American businesses are calling on the Trump administration to end the trade war against China, Wilson Electronics and other manufacturers say that tariffs, if they are targeted in scope, will help address longstanding unfair trade practices used by China,” CNBC’s Spencer Kimball reports.


— UAW goes on strike: "About 49,000 General Motors employees walked off the job at 12 a.m. Monday after negotiations between the United Auto Workers union and the Detroit-based carmaker broke down," my colleagues Deanna Paul and Alex Horton report. "The union had announced plans for the nationwide strike Sunday afternoon, and no deal was reached before the midnight deadline. It is the first national UAW strike since 2007."

"Despite ongoing talks since July, when the union met with GM leadership to renew an arrangement in place since 2015, the parties remain divided on several key issues. The UAW said it is aiming to secure fair wages, affordable health care and better job security, among other things."

Trump weighed in: 

— Purdue Pharma files for bankruptcy: "Purdue Pharma, the drug manufacturer accused of triggering the nation’s epidemic of opioid addiction through its sale of the profitable but highly addictive painkiller OxyContin, filed for bankruptcy Sunday," my colleague Christopher Rowland reports.

"The Chapter 11 filing is expected to lead to the ultimate demise of a company that sold a fraction of the opioid prescriptions in the United States but nonetheless is most closely identified with the epidemic because of its pioneering role in the sale of narcotic pain pills ... The company’s move to seek financial shelter, part of a tentative settlement with thousands of litigants, will shift the focus to new wrangling over how potential proceeds will be divvied up by communities reeling under the burden of addiction and overdose deaths."

— Gucci’s 'blackface' sweater cost company: “Gucci boosted its brand and sales by using social media to flaunt its connections with hip-hop artists and promote its theatrical fashion shows, but that momentum reversed in February, after the release of a sweater that critics likened to blackface,” WSJ’s Eric Sylvers and Suzanne Kapner report.

“The result: Gucci lost the top spot among luxury companies for social-media engagement in March, according to Tribe Dynamics, and in July it reported its first quarterly drop in North American sales since early 2016. The retreat shows how luxury companies that thrive on Instagram and other social-media outlets can just as quickly stumble because of them. Such platforms have become the lifeblood of the attention-seeking fashion business, a marketing strategy that Gucci built around its star designer Alessandro Michele.”


Via The Economist's Simon Rabinovich, a look at China's ongoing move to a state-led economic model: 




  • The Fed's Open Market Committee begins its two-day meeting in Washington on Tuesday.
  • The Fed also releases its monthly index on industrial production on Tuesday.
  • Adobe and FedEx are among the top companies reporting their earnings on Tuesday, per Yahoo Finance.
  • The FOMC releases its decision on whether or not to cut interest rates, which will be followed by Fed Chair Jerome Powell's press conference on Wednesday.
  • General Mills is among the top companies reporting its earnings on Wednesday, per Yahoo Finance.
  • The National Association of Relators releases its U.S. existing-home sales figures for August on Thursday.
  • The CFPB holds a symposium on behavioral economics, featuring remarks from its Director, Kathleen Kraninger on Thursday.



In the wake of a drone attack in Saudi Arabia, politicians on both sides of the aisle debated how to handle increased Iranian aggression on Sept. 15. (Video: The Washington Post)
Former vice president Joe Biden spoke Sept. 15 about race, hatred and forgiveness in the United States at the 16th Street Baptist Church in Birmingham, Ala. (Video: Joe Biden/YouTube)