Trump may help Wall Street banks get their trading groove back

Key Points
  • The Volcker rule prohibits banks from trading for their own accounts.
  • Trump administration officials will be looking at providing clarity on the kinds of activities in which banks can engage.
  • Treasury Secretary Steven Mnuchin held a closed-door meetings with regulators earlier this week, according to a report.
Blankfein: US banks are over-capitalized now

Help likely is on the way for banks looking to get out from under trading restrictions levied after the financial crisis.

At a closed-door meeting earlier this week, Treasury Secretary Steven Mnuchin directed five regulatory agencies to review the so-called Volcker rule, which prohibits banks from trading for their own accounts, according to a Bloomberg report.

The rule is designed to reduce risks at big financial institutions and head off the need for the kinds of bailouts needed during the crisis. However, banks complain that it has constricted their operations and reduced revenues.

Mnuchin's directive is similar to others from the White House that have sought reviews of the myriad regulations put in place under the Obama administration. The meeting came with the 15 agencies that comprise the Financial Stability Oversight Council, according to Bloomberg.

The ultimate goal is to get the FSOC to issue revised guidelines that would give the banks more clarity on permitted activities. While President Donald Trump has talked about repealing the broader Dodd-Frank rules put in place after the crisis, there appears to be little political will for overturning the entire legislation, both for logistical reasons and a desire for Republicans not to look soft on Wall Street.

President Donald Trump speaks alongside Treasury Secretary Steven Mnuchin (R) during a meeting in the Roosevelt Room at the White House Feb. 22, 2017.
Saul Loeb | AFP | Getty Images

A readout from Monday's FSOC meeting, held at the Treasury Department, indicated it was convened in part to "assess the efficacy" of the Volcker rule. The rule changes were part of a larger discussion centered on reviewing the "core principles for regulating the U.S. financial system."

In an interview with CNBC earlier this week, Goldman Sachs CEO Lloyd Blankfein said there should be "much more flexibility" regarding trading rules.

"Market making is a very important public function of companies like ours," he said.

Trading has been a mixed bag for banks. Goldman, for instance, saw a 6 percent decline in equity trading revenue as part of an overall disappointing first quarter. Bank of America, meanwhile, saw its fixed income trading revenue jump 10.7 percent.

Bank earnings overall in the first quarter rose 11.2 percent from the same period a year ago, according to Keefe, Bruyette & Woods.

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