Global Banking: The Head Winds Of Regulation

It’s easy to argue that the global financial system is biased in favor of the banking industry. After all, the largest international financial entities have actually grown larger since the 2008 / 09 economic crisis, while benefiting from the now-institutionalized presumption that our governments consider them “too big to fail.”

But there are times when an entire industry finds itself facing the head winds of governmental oversight. Recently, for instance, a wide variety of news stories in the United States and across the globe addressed new proposals for the banking industry. And none of them – not a single one – proposed a policy in favor of deregulation.

Last week, for domestic banks that operate within the United States, three American financial regulators proposed doubling (yes, doubling) the capital reserve requirements of the financial institutions. Although the proposed standards would greatly surpass the reserve levels that are currently required under the global Basel system, the regulators asserted that they would provide reasonable protections against future fiscal crises.

Then another American financial regulator proposed that mysterious “dark pools” of trading activities, now operated by private organizations, should be required to disclose their activities. Finally, a trio of United States Senators announced an effort to reincarnate the Depression-era Glass Steagall prohibitions that separated traditional banking lines of business from speculative trading activities.

Meanwhile, on the global stage, Great Britain’s banking system stripped its own British Bankers Association (BBA) of authority over the deeply flawed London based Libor rate setting mechanism and handed it to NYSE Euronext. And the Swiss authorities agreed to move one step closer to the elimination of tax haven benefits within its once secretive banking industry.

Even the single news story that appeared to contain a glimmer of good news for the banking industry was, in fact, a story that pleased proponents of government oversight. The American financial regulator that sought to extend domestic bans on derivatives trading activity to foreign banking subsidiaries agreed to delay this extension for six months. Although lobbyists favored the outright cancellation of these extension plans, they were forced to accept a six month delay instead.

On the one hand, these news stories will likely fail to satisfy the Wall Street critics who continue to complain that very few financial professionals went to prison or were otherwise punished in the wake of the global economic crisis. On the other hand, though, the global financial industry is clearly tacking against the prevailing winds of regulation.