Transatlantic financial sector reform

Wednesday, 26. May 2010     0 comment(s)
Charly Salonius-Pasternak
Senior Research Fellow - The Global Security research programme

The financial sector is about to be reminded that it is states that ultimately control what the private sector does. That it has taken states two years since the financial crisis – and the catastrophic meltdown of Greece – to get to this point speaks volumes about the power and influence that this most globalized of industries has amassed. Ultimately, not even the brightest minds of the financial industry could obscure the fact that states have the strongest claim to wield legitimate political power – which in democracies they are bound to use to protect and enhance the lives of their citizens. The citizens demanded more stringent financial regulation, and now politicians on both sides of the Atlantic are in the process of providing it.

What makes this week’s news especially notable is that though they are at different stages of imposing far stricter regulation on the financial industry, the major transatlantic financial bulwarks, the United States, United Kingdom and Germany are all actively pursuing changes that seek to make the financial meltdowns of 2008-2010 much rarer. In a sign of focusing on the bigger picture, the new EU Commission is also about to propose sweeping legislation that would make it easier to wind down an over leveraged bank, rather than having governments and tax payers provide a bailout.

Indirect cooperation on this issue is significant in one way in particular: for some time the common wisdom had been that even mildly coordinated transatlantic financial reform was impossible. In a similar vein, it has been argued that a transatlantic free trade area was very unlikely, because coordination and cooperation over agricultural policies is nearly impossible. Agriculture may be more tangible than derivatives (but the concept of futures is intimately tied with agriculture), so transatlantic cooperation on the subject may be difficult. However, as we are being reminded this week, when states reassert themselves they can force lobbyists and the private sector at large to bend to their will and the legal frameworks they author.

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