Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

Some U.S. bank regulators don't seem to be getting President Donald Trump's message.

Even though Trump has telegraphed an imminent rollback of banking rules, at least one agency is still spoiling Wall Street's fun. The Office of the Comptroller of the Currency recently spurned JPMorgan Chase & Co.'s novel attempt to reduce the amount of capital it had to hold to offset risk tied to pools of mortgages. The action shows that wrangling the regulatory bureaucracy will be anything but smooth. 

In the JPMorgan case, the bank created bonds backed by a bunch of mortgages it had on its books, ranked according to risk and potential return. It then sold most of the junior slices to outside investors, hoping the maneuver would reduce the effective risk of the assets in the eyes of regulators, thus reducing the bank's capital requirements. (The bank retained the senior portions.) 

Loan Growth
JPMorgan has looked for innovative ways to reduce capital requirements for its loan book
Source: Regulatory filings, Bloomberg

But the OCC shot it down recently, according to a Feb. 3 report in Asset-Backed Alert. This decision was closely tracked on Wall Street because other big banks were hoping to do similar transactions if JPMorgan succeeded. There was quite a bit of surprise that the OCC spurned the New York bank's efforts after months of studying the issue.

Golden Expectations
Since the U.S. election, traders have priced in bigger future profits for JPMorgan
Source: Bloomberg

European banks have arranged similar transactions and persuaded regulators to sign off on them. And one analyst noted that JPMorgan did, in fact, successfully transfer credit risk to investors who bought the lower-ranked mortgage-backed debt. 

Profit Squeeze
JPMorgan is trying to bolster its profitability at a time of historically low long-term rates
Source: Bloomberg

Without weighing in on the OCC's decision, it does seem as though the agency is taking a harsher stance than its European counterparts. And its approach may very well set it up for a battle in the new U.S. presidential administration, which has been clear about its distaste for almost all forms of regulation. 

Trump signed an executive order on Feb. 3 ordering a sweeping review of the rules set up under the Dodd-Frank Act, which was passed in 2010 to prevent another financial crisis.

 “We’ve been told we need deregulation to grow jobs in this country," Gary Cohn, former chief operating officer at Goldman Sachs and current chief economic adviser to Trump, said in a recent Bloomberg Television interview. "We are not anti-regulation. We want smart regulation that allows our financial services to be the envy of the world.”

The reality, though, is that a lot of banking regulation stems from disparate regulatory bodies that have a lot of discretion. Trump's team is already trying to clamp down on this. For example, the vice chairman of the House Financial Services Committee, Patrick McHenry, recently sent a letter to Federal Reserve Chair Janet Yellen instructing her agency to stay out of global regulatory forums until receiving more guidance from the executive branch.

This tension, between existing regulatory staff and the new administration, will most likely only worsen. This will lead to a good deal of confusion on Wall Street and at federal agencies alike. And the result is likely to be a messy and delayed rollback of any financial regulation.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Lisa Abramowicz in New York at

To contact the editor responsible for this story:
Daniel Niemi at