Global financial rule-makers risk losing relevance if Trump pulls back entirely

BRUSSELS — For decades, global finance has operated on a peculiar kind of authority — one without armies, enforcement powers, or a democratic mandate.

Instead, the officials who govern the sprawling, interconnected financial system rely on something more intangible: trust, consensus, and the quiet credibility of technocracy.

But now, under the Donald Trump administration, the U.S. — long a major voice in international rulemaking — is threatening to take a wrecking ball to that system. 

Until now, these global bodies have generally flown below the radar, leveraging good relationships with governments and the technical obscurity of their work to avoid public scrutiny.

But in the age of increased politicization of regulators and TV adverts bashing bank regulations, that way of doing business may no longer hold true. 

America’s move to reject global standards and its threat to withdraw from the bodies that draft them risks pulling the rug out from global standard-setting as a whole.

For such a seemingly technical topic, the stakes are high. With markets roiling from the U.S. government’s tariff bomb, the risks of financial turmoil are closer than ever — a message Wall Street titans have been trying to impress upon Trump, with figures such as JP Morgan head Jamie Dimon warning of diminished U.S. credibility and even a recession in response to U.S. policies.

Yet, without the firepower of the U.S., global regulators would be hamstrung in their efforts to contain a crisis.

America first

The U.S. will review its membership of “all international organizations” within 180 days to decide whether support or membership should be withdrawn, following a Feb. 3 executive order from Trump.

Treasury Secretary Scott Bessent has said the U.S. wants a “sustainable international economic system” that better serves its interests, announcing on Wednesday that the U.S. will seek reforms rather than withdrawing outright from the International Monetary Fund and World Bank.

Yet, it remains unclear whether that position will extend to global bodies like the Basel Committee on Banking Supervision, whose standards are toothless unless accompanied by national laws. The same applies to the Financial Stability Board, which was set up in the wake of the 2008 crisis to prevent another one from happening.

Domestically, Trump has rolled out a major deregulation agenda for the finance sector. And while the U.S.’ plans to roll out global banking reforms agreed after the 2008 crisis, known as Basel III, were paused amid heavy lobbying during the Biden administration, the future of the package in the U.S. looks all but dead now under Trump, with industry players expecting a much lighter rewrite.

Donald Trump has rolled out a major deregulation agenda for the finance sector. | Ken Cedeno/EPA

If the U.S., a founding member of many of the bodies and the major player in the capitalist system, doesn’t put stock in the global rules anymore, their legitimacy comes into question.

America’s approach to the Basel III standards has already sparked a race to the bottom with other major jurisdictions. The U.K, for example, has delayed its rollout of the standards until it knows what the U.S. will do, while the EU is delaying the application of some parts of the rules.

Stiff upper lip

Publicly, global finance watchdogs are bullish about the U.S.’ continued participation.

Jean-Paul Servais, chairman of the board of IOSCO, the global standard-setter for financial markets regulation, told POLITICO in March that he is “at ease about the capacity to work together” with the U.S. in future.

“Frankly speaking, it’s not a problem or an issue for me, because I’m used to having excellent contact with my American colleagues,” Servais said.

But behind the scenes, the mood isn’t so confident. In background conversations with POLITICO, three top officials at global standard-setters expressed their concerns and fears for the future if the U.S. decides to take a wrecking ball to international financial rulemaking. 

One expressed frustration that global watchdogs have no enforcement power, and are reliant on the goodwill of member countries to roll out the rules that are created. That means that even when the vast majority of their members support and implement the rules, foot-dragging from one major jurisdiction can spark a race to the bottom from other members.

The official said the situation is less an indictment of specific global bodies and more of the dwindling credibility of the U.S.-led international order.

Another painted a picture of standard-setters in survival mode, aiming to preserve existing commitments from being watered down while acknowledging that future work on politically sensitive areas like climate risk will be more difficult.

A third indicated that rules would likely be less ambitious to garner support of all members, as they said there would be no point agreeing to standards which are then not implemented by certain jurisdictions.

But the existential threat of a full U.S. pullout appears to be too loaded an issue to address. None of the standard-setters POLITICO spoke with would comment directly, either on the record or on background, on whether they thought the U.S. would pull out, or what it would mean for their organizations.

Treasury Secretary Scott Bessent has said the U.S. wants a “sustainable international economic system.” | [PHOTO BY Drago/EPA

Limping on

For now, global watchdogs are waiting for the 180-day deadline for a decision on U.S. withdrawals to pass. 

“It’s a guessing game right now,” said Thorsten Beck, an economist who heads the Florence School of Banking and Finance at the European University Institute. Although Beck did not predict a full U.S. withdrawal from the bodies, he said America is likely to “take less of an interest in being part of these discussions” and instead “concentrate more on what is supposedly best for them.”  

If so, that would point to more regulatory fragmentation, meaning cross-border finance firms will have to contend with different rules in different countries. In a situation where the U.S. remains a member of these bodies, but no longer actively participates in creating and following global finance rules, “you do not have development of global regulatory standards anymore. Everybody does their own thing,” Beck said.

If the U.S. does pull out, the global bodies would become “more of a social club, a talking club and not relevant anymore,” Beck added. Emerging powers like the BRICs, and in particular China, would likely play a larger role in global talks on finance regulation — a trend one of the top officials POLITICO spoke with echoed. 

The difference would mainly be felt in a future financial crisis, Beck said. Without the U.S., the world’s regulators would be far less effective at coordinating and acting quickly — both actions which rely on trust and good relationships — to contain a crisis.

“If you disengage from the world, then this trust cannot be built up anymore.”

Ben Munster contributed reporting.