Wall Street seeks to change Dodd-Frank rules via trade

‘Trojan Horse’

“The trade talks could easily become a Trojan Horse,” said Marcus Stanley, the policy director for Americans for Financial Reform, a group that includes labor unions, civil rights organizations and consumer advocates.

In separate letters on the EU and Asia-Pacific pacts, the industry coalition said negotiators should draft rules limiting what regulators can do in the name of protecting financial stability. The letters also urged using the pacts to curb extra- territorial rules that can reach beyond U.S. borders, like ones currently being considered on financial derivatives.

None of the letters specifically mention a desire to change the Dodd-Frank law, the 2010 overhaul of U.S. financial regulation. The law does, however, address many of the issues raised in the letters on the trade agreements.

The coalition called for the U.S.-EU agreement to avoid rules that reach across national boundaries and have an “extra- territorial effect.” Allgeier said that suggestion was motivated in part by a fight over regulation of the cross-border swaps market under Dodd-Frank.

EU Negotiations

The 27-nation EU hopes to complete talks on a broad agreement on investment and trade in goods and services with the U.S. within two years, EU Trade Commissioner Karel De Gucht said on Feb. 13.

The U.S. announced plans to join a WTO negotiation on trade in services, in areas including finance, logistics and telecommunications, on Jan. 15. Asia-Pacific nations including the U.S. and Japan are also working on a deal for that region, the Trans-Pacific Partnership.

Trade policy grew more controversial in the 1990s as pacts such as the North American Free Trade Agreement and WTO deals addressed domestic rules -- rather than only tariffs applied at borders -- as potential barriers to commerce. Services, in particular, face domestic regulations because companies usually need to be physically present to provide them.

Volcker Rule

The financial services industry has already invoked international trade rules in its bid to weaken proposed regulations, notably the Volcker rule that would ban proprietary trading. Named after former Federal Reserve chairman Paul Volcker, the rule is a signature part of Dodd-Frank.

The U.S. Chamber of Commerce sought a review of the rule by U.S. trade authorities, arguing it violated existing agreements.

In a Feb. 26 letter on the WTO negotiation, Allgeier said that the blanket exemptions for so-called prudential regulations, aimed at ensuring the safety and soundness of the banking system, should face some limits.

For example, domestic prudential regulators shouldn’t be able to discriminate against foreign companies, and should act in a manner that is “least trade and investment distorting,” Allgeier wrote. Also, capital requirements in financial services should not be used as “disguised barriers to entry or competition with domestic suppliers.”

The complaint about capital standards echoes Jamie Dimon, the chief executive officer of JPMorgan, in 2011. Dimon criticized capital standards created by the Basel Committee on Banking Supervision as “anti-American” over their additional penalties on large banks and liquidity rules.

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