Simon Johnson over at the baselinescenario explains why international regulation of the banking system won’t change:
The resolution authority/modified bankruptcy procedure
underdiscussion would do nothing to make it easier to manage the
failure of a financial institution with large cross-border assets and
liabilities. For this, you would need a “cross-border resolution
authority,” determining who is in charge of winding up what – and using
which cash – when a global bank fails.
To be sure, such a cross-border authority could be developed under
the auspices of the G20, but there are not even baby steps in that
Part of the answer, of course, is that big cross-border banks know
how to play governments off against each other – dropping heavy hints
that “international competitiveness” is at stake.
This is a typical threat used by big business when it opposes regulation. The ‘we won’t be able to compete internationally’ line is wearing extremely thin given the failure of deregulation to provide the riches its proponents promised. As Johnson explains:
These are empty
threats – if the US, the UK, and the eurozone cooperated on a
resolution regime, this would get serious attention. If they went
further and truly integrated their regulations – including
communications and practices (and inspections) across
regulators/supervisors – this could have major impact.
Properly regulated financial systems can, and have worked. The post WWII economic boom happened because international finance was heavily regulated, and only went awry after it was deregulated in the 1970’s. In the short term banks benefit from lack of regulation – it allows them to come up with lots of fancy equations that make them huge short term profits (known as ‘creative financing’ or more aptly ‘loan sharking’). But in the long term, everyone suffers as their own greed and shortsightedness bankrupts the entire system, as we have just seen.
Ben Cohen is the editor and founder of The Daily Banter. He lives in Washington DC where he does podcasts, teaches Martial Arts, and tries to be a good father. He would be extremely disturbed if you took him too seriously.