Barclays’ HQ move talk puts regulators on the spot

March 31, 2011

It should come as no surprise that New York Mayor Mike Bloomberg welcomes the idea of Barclays moving its headquarters to Manhattan. It would be a prominent feather in his cap in the long-standing feud with London over who is the dominant global financial center. But U.S. regulators would be unlikely to match the mayor’s warm welcome.

Barclays executives are considering making the Big Apple their new home if UK capital charges end up going too high. If it weren’t for the financial crisis, such a move would be little more than a matter of lost tax revenue and national pride. But it would be the most glaring example yet of global regulatory arbitrage. It would also be ironic: U.S. banks have been complaining that new rules in last year’s Dodd-Frank Act give Europeans the upper hand. And JPMorgan Chief Executive Jamie Dimon said in a speech on Wednesday that he feared U.S. bank capital requirements could end up more onerous than elsewhere.

Most of this is probably saber rattling as banks try to convince regulators, and in the case of Barclays the UK’s Independent Commission on Banking, that some new rules need toning down. But it highlights the risks of watchdogs in each country clamping down on their charges without a greater measure of global harmonization.

On the one hand, having too harsh a regulatory regime could lead to businesses moving out, as appears to be the case with Barclays considering a New York domicile. If nothing else, Barclays has a duty to shareholders to examine its options. There’s a big difference to the bottom line in holding, say, 10 percent Tier 1 capital instead of 7.5 percent, though such advantages might be offset by higher tax bills and potentially onerous restrictions once rules outlined in Dodd-Frank are finalized.

But regulators acting too leniently could also be a curse. If Barclays does move to New York, for example, U.S. regulators will have yet another too-big-to-fail institution to look after — and U.S. taxpayers might risk being on the hook for a business which at present still makes most of its money abroad.

At the extreme, that could lead to watchdogs second-guessing their international counterparts, basing regulation more on fear of arbitrage than promoting systemic safety and soundness. They would do far better to bring back more coordination to their rule-making — a pledge that seems to have vanished with the end of the banking crisis.

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