This week marks the fourth anniversary of the most wide-sweeping financial reform since the Great Depression (known as Dodd-Frank). To avoid another 2008 would be great, but at this date and rate, astonishingly, only half the provisions have been implemented. Is financial reform in its dying days? Are we safer?
Despite regulators being overwhelmed by a complex and convoluted global financial system, and underfunded with resources to dispatch some fairly daunting duties, some important protections are in place to avoid another economic recession or depression. Many rules now exist to oversee previously unregulated “dark markets” with zero, zippity, nada supervision. Policies and procedures have been established to avoid systemically important institutions (like large banks) from failing and causing a colossal collapse.
However, unfinished work remains. These are global markets, interconnected like never before. What happens in New York or Chicago impacts London, Shanghai, Sydney, Singapore or Sao Paulo … and vice-versa. In financial markets today, we are the world. What that means is just because the U.S. has implemented some of the laws (albeit delayed … and some diminished in strength) others around the world need to step up to the plate and do so as well.
If the U.S. were the only nation with new financial rules, some firms might choose to move business to less regulated nations — perhaps those with thinner rule books. Such market migration wouldn’t be good for the U.S. However, others are now moving forward with their own financial reforms. The questions are: Will all regulators get it right, and when?
The movie “Field of Dreams” with Kevin Costner came out 25 years ago. In it, Costner’s character hears a whisper from his Iowa corn field: “If you build it, he will come.”The “he” is disgraced old-timey baseball player “Shoeless” Joe Jackson of the Chicago White Sox — accused of rigging the World Series. Thus, a baseball diamond is built. Shoeless Joe and others materialize and play ball. Like the film, if financial regulations are built, appropriately and properly, in the U.S. and the European Union (together comprising roughly 70 of financial markets), the rest of the world will come. That will take a few years. It will require industry input to ensure regulators act in a balanced fashion. Ultimately, what may appear today to be regulatory reforms’ dying days will come to a close and we will, in fact, be better protected.