Opinion

Felix Salmon

The regulatory fight moves from Washington to Basel

By Felix Salmon
June 25, 2010

It’s a great day: financial regulatory reform is done, and not a day too soon. The Consumer Financial Protection Bureau is coming — Ron Lieber has a great overview of how that will change the regulatory landscape — and while banks won’t have to sell their swaps desks entirely, they will need to spin them off into separately-capitalized, small-enough-to-fail subsidiaries which deal mainly on public exchanges. That’s a big and a welcome change.

No one really knows how the bill is going to shake out in reality: the Volcker rule, in particular, remains very vague indeed, and a lot of regulatory heavy lifting is being put onto the untested shoulders of the SEC and of other institutions which have failed many times in the past. But in general the bill makes as robust an attempt as could reasonably be expected to both monitor and ring-fence the kind of things which can cause systemic meltdowns.

The big disappointments on the consumer side were on auto dealers and annuities, neither of which are going to get the regulation they very much need and deserve; it’s also worth pouring out a glass for the late lamented vanilla option. And there are still far too many bank regulators: the OTS goes away, but the OCC remains, along with the FDIC and the SEC and the NCUA and the Fed. It’s a recipe for inconsistency, confusion, regulatory arbitrage, and turf wars.

The most important thing right now, however, is that the White House not sit on its laurels, and that it tries to carry over some of the momentum from the passage of this bill into the negotiation of Basel III, which seems to be falling apart a little. It’s in Basel, not Washington, that the most important constraints on the global banking system are going to be enacted. And pushing the rest of the G20 to get tough in Basel should be at the top of Barack Obama’s to-do list this weekend.

Comments
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‘And there are still far too many bank regulators: the OTS goes away, but the OCC remains, along with the FDIC and the SEC and the NCUA and the Fed. It’s a recipe for inconsistency, confusion, regulatory arbitrage, and turf wars.’

Perhaps when Mr. Obama is enjoying dinner in Toronto this weekend with our Mr. Harper, he might ask how Canada manages to regulate its banking system with just one regulator – the Superintendent of Financial Institutions. Canada has six or more quite large banks and a myriad of smaller, regional banks and trust companies, yet they all emerged largely unscathed from the recent financial crisis. ‘Just how did that happen?’ would be a good question for Mr. Obama to ask.

Posted by Gotthardbahn | Report as abusive
 

Correct me if I’m wrong, G-bahn, but it might be easier to regulate banks in a climate that won’t take “D’uh, not sure, but how about some more of that taxpayer money?” for a good answer from any banking conglomerate to the question of what they’ve been doing with funds entrusted to them.

It might be easier to regulate banks that aren’t viciously obstinate toward any sort of regulation, and it might be even easier still to get answers out of banks that weren’t outright bribing people who ought to be asking questions not to ask them.

In other words, you could say Obama’s job’s really a piece of cake, as long as you don’t ask where the cake’s coming from.

Posted by HBC | Report as abusive
 

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