Tim Geithner, America’s treasury secretary, promises a complex regulatory overhaul by mid-June and Europe is not wasting any time either.
The European Commission announced the formation of two institutions, the European Systemic Risk Council (ESRC) and the European System of Financial Supervisors (ESFS). These organizations, it is hoped, will rectify the trans-national banking problem that occurs only in Europe. The problem is that European banks are allowed to operate across any border, but the home country is saddled with the responsibility of supervising the banks in whatever country the bank operates. Thus, it takes only one country to disrupt the economic equilibrium in the European Union, as this financial crisis has revealed.
Some think that the ESRC and ESFS may not be as effective as hoped. There are those who argue that fundamental issues such as funding and governance was not adequately addressed in the establishment of these organizations. The argument goes further to hold that the European Commission is being too hasty in the formation of these noble organizations. They may be correct because it is hard for any organization to make much of a contribution if it is not funded and/or goverened. And funding and governance are always areas ripe for debilitating debates and arguments among the countries comprising the EU.
In America, the big banks will grudgingly accept further regulation if greater stability is provided. However, in the nation’s capital, regulators and Congress leaders squabble over ideology. Sheila Bair of the FDIC and John Dugan of the Comptroller of Currency are at odds at what the FDIC should be allowed to do. Bair favors the FDIC’s role as a liquidator of non-banks as well as banks, an idea which Dugan strongly opposes. There is no clear plan for what would be a systemic regulator in the U.S economy either. The existing regulators, involved with government agencies in desperate need of modernization, are understandably very concerned and very vigilante about any immediate changes to their status quo. In short, the perfect storm of partisan politics and the lobbyists of the existing regulators, will most likely make 2009 a year that sees fewer regulatory changes.
So, while there seems to be a demand for regulation on a grander scale for the banks/financial companies the regulators are already tearing apart that idea. I think that some form of consolidated regulation on a (hopefully) temporary basis could be just what the world needs. Whether the world gets it is another question altogether.
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