House of Cards

My passion for US politics finds its roots in childhood.

My maternal grandfather had in Burgundy what we called at the time in the family, a “mansion”. It was composed of several houses, surrounded by vineyards and fruit trees. At the naptime, when Burgundy summer is so hot, we were seeking refuge in one of them, where my grandfather was used to pile his books and magazines to save space.

Letting the hottest hours pass by, before returning to my exploration of vineyards, I spent hours there, learning by heart magazines from the fifties and the sixties about Kennedy’s election and assassination, Vietnam war, Nixon’s victory, Watergate …

This story to say at which point I was proud and happy to have this morning – with my colleagues of the French Banking Federation – an appointment with a member of President Trump’s Financial Policy team. Well, let’s be honest ! Due to some last minute issues and a lack of time to resolve it, we didn’t enter IN the White House.

But yet, we had a meeting with someone who works AT the White House ! An incredibly smart gentleman I must say, far from the idea we can have in Europe of President Trump administration !… We also had some appointments today with the Treasury Department.

Why the White House and the Treasury Department ?

On February 24, in a post originally published on LinkedIn and republished here, I was writing about the launch of a process of recalibration of US financial regulation. A few days before, under Gary Cohn’s influence, the President had issued an executive order outlining White House plans in this field, and defining seven “core principles” for the reform. The new Secretary of the Treasury, already confirmed by the Senate at the time, Steve Mnuchin, helped by the Financial Stability Oversight Council (FSOC) that he chairs by the way, was then supposed to report to the President on the extent to which existing laws, treaties, regulations, guidance, reporting, recordkeeping requirements, and other government policies were promoting the “core principles”.

A first so called “Treasury report” about banking – 1/3 implying legislative changes, the rest depending of regulations issued by the agencies – was released on June 12th, and a second one related to financial markets, liquidity and central clearing – almost exclusively regulatory – a couple of days ago, on October 6th. A third report should be issued next week, focusing on asset management, insurance, and some financial products like ETFs for example. A last one will come later, about innovation.

But the roadmap of President Trump administration is pretty clear. And the papers are done for that, with in both reports, a two pager of recommendations.

This evening, I had a dinner with an analyst from the US Treasury Department, who was very disappointed to learn that in the two reports, I had read only the recommendations. But that’s the way it works ! Policy must be simple and express a vision. That’s it !

Back to Banking and Finance, Europe’s banks are in retreat from playing a global Investment Banking role.

This should not be a surprise : « It is an, often intended, consequence of the regulatory requirements of recent years » was saying a March 2016 Bruegel policy contribution titled “the United States dominates Global Investment Banking, does it matter for Europe ?”. By the way, to the question of the title, Charles Goodhart and Dirk Schoenmaker were answering “yes, it does matter”.

The United States dominate Investment Banking at the global level, but now also in Europe. And nobody seems to care about this in Europe.

As clearly demonstrated by the two first Treasury reports, the US decided to increase their advantage, understanding that access to capital is a strategic issue in our developed economies.

Europe didn’t understand yet. Under the umbrella of the European Banking Federation, I will have the opportunity to be heard about this matter by some Members of ECON Commission at the European Parliament, early December.

How to convince ?


Iconography : The East Wing of the White House seen from the Treasury Department, Washington DC, October 11th 2017, personal collection.


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2 Comments on “House of Cards”

  1. Hello Laurent and thank you for this no nonsense insight into Washington’s view of Investment Banking.
    Since they published the core principles early in February, the US administration has lived by those principles in quite an extreme fashion… DFA and other US regulations are now looked upon with the greatest of disdain. BCBS constraints appear to matter less and less ( BCBS doesn’t resist: see NSFR recent changes). And I am told meetings with US regulators do show some of their senior officials to have been “fired” without replacement. Those still in place do not even blink anymore…
    But as you rightly mention this should be no surprise: it is a direct consequence of core principles (d) and (e):
    (d) enable American companies to be competitive with foreign firms in domestic and foreign markets;
    (e) advance American interests in international financial regulatory negotiations and meetings;
    One thing to the credit of this administration: it wears no mask and does what it says no matter how bold it may seem.

    How to convince then ? When competition suffers so suddenly such a huge distortion and dialogue is frown upon by the guilty party… I can think of only one way for the other to restore balance: act exactly alike. If Europe doesn’t protect its Global Banks fast, the US will dominate Global Investment Banking and it WILL definitely matter: the competition will become distorted everywhere because access to funding for Global companies will see US ones privileged…as per core principle (d)

    1. Thank you Pierre for your comment.
      As your identity doesn’t appear, let me precise that you are a colleague, working at SG Investment Banking. 🙂

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