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Should we wait for the world?

If you spend much time around the FinReg debate, you'll hear a lot of people saying that the only way forward is international action. There's a rationale for that: Banking is an international industry, and a bank can escape tough regulations in one country by escaping to another. In practice, however, that doesn't happen too often, and it could be handled if it began occurring in large numbers. Meanwhile, international action is hard to coordinate. In the Wall Street Journal today, Damian Paletta and David Enrich report that the talks are mired in blame and bickering.

In the talks, some U.S. government officials are fighting what they view as an anti-American proposal that would prevent banks from counting as part of their capital cushion a specific type of security favored by U.S. banks known as a trust-preferred security.

Several other governments are pushing to change the way tax credits are counted as capital, amid arguments that the rules help banks in certain countries but hurt others. French officials are lobbying against rules that could force some of their banks to divest themselves of insurance subsidiaries or face major blows to their capital. The Japanese are also opposed to elements of the new rules.

Meanwhile, U.K. and U.S. officials have clashed over British attempts to require foreign banks to stash more cash in their U.K. subsidiaries. A top official with the U.K.'s Financial Services Authority, Britain's top regulator, says the policy is a response to the U.K. getting burned by the collapse of Lehman Brothers, which taught the agency "to be cautious about relying on other regulators."

If we can get a good international agreement, then that's great. But the hope of that should distract us from securing strong domestic regulations.

By Ezra Klein  |  April 22, 2010; 11:45 AM ET
Categories:  Financial Regulation  
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Comments

ezra,

I think you meant in your last sentence that the hope of that should NOT detract us.


That being said I'm always one for being aware of the unintended consequences of legislation and if you want to ensure that New York is slowly passed by the other financial power market hubs then don't worry about it.

btw, the same can be said of climate legislation.

There's a reason why the world acts together on issues that impact the entire world. I agree not to act on it would be wrong but the best case scenario would be a transaction tax globally set at a reasonable level.

If the world can't agree then I would still do it, but I would moderate how high the tax is so it doesn't have those unintended consequences.

Posted by: visionbrkr | April 22, 2010 11:53 AM | Report abuse

"But the hope of that should distract us from securing strong domestic regulations."

Shouldn't distract us, right?

That being said, new and shiny shouldn't distract us from old and functional. Glass-Steagall. Ahem. Cough-cough.

Posted by: Kevin_Willis | April 22, 2010 12:09 PM | Report abuse

Also doing FinReg in coordination with international bodies or other countries will weaken it's ability to break a filibuster. I don't need to go into depth about how Republicans feel about international bodies.

Posted by: tmorgan2 | April 22, 2010 12:13 PM | Report abuse

Notably, since it's Earth Day, the same arguments apply to climate legislation.

Posted by: slyc | April 22, 2010 1:53 PM | Report abuse

The comments to this entry are closed.

 
 
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