After the financial crisis, regulators and politicians promised that really, this time, they meant it. The Basel Committee was to be obeyed; regulators would talk to each other, global firms would have a level playing field and standards would be raised.
But it didn’t happen. The derivatives industry has been grappling for years with the mutual incompatibility of the Dodd-Frank Act in the United States and EMIR in the European Union.
But even in banking, where rulemakers had two previous Basel Accords to practice on, consistency is sorely lacking. The UK and Switzerland confidently marched ahead with their own regimes, leaning on the experience of their regulators and channelling public anger about bailing out their mammoth banking systems.
Now the US has gone its own way too, introducing higher capital standards for its big banks, calculated in a different way. The Federal Reserve continues to pay lip service to Basel III — but it has made sure to calibrate its rules so that domestic US standards, not Basel standards, kick in first.
The big difference from pre-crisis is that the new race is to the top, not the bottom. The US, UK and Switzerland have all broken from the pack because they wanted to introduce tougher rules than the international community would agree to.
This makes finance incrementally safer, but it isn’t exactly the brave new world we were promised. Multiple overlapping regulatory frameworks hurt competition, confuse investors and contribute to complexity.
Special pleading to be tough on finance can also give rise to special pleading for exemptions. If the Fed wants different capital rules for big banks, why shouldn’t there be a Chinese exemption on bail-in debt, or a European carve out for covered bonds?
Both of those exist; perhaps it is too late to expect international consistency. But it would be nice if regulators were still trying for it.