US financial market regulation
The US financial market remains the most important foreign market outside the EU for the Association of German Banks’ member banks. Its legal framework features a large number of different authorities and rules and regulations. In addition, US regulators repeatedly adopt measures which affect the global business of the German and European banks operating in the US. At the same time, the financial crisis has triggered large-scale reform efforts.
For example, 21 July 2010 saw the entry into force of the US Dodd-Frank Wall Street Reform and Consumer Protection Act introducing, among other things, stricter supervisory rules and a special resolution regime for systemically important financial institutions, banning proprietary trading, investment in certain funds as well as certain types of derivates business by banks and regulating more tightly securitisations, over-the-counter derivatives trading and the activities of credit rating agencies and hedge fund managers. Unfortunately, the Dodd-Frank Act fails to streamline the complex US supervisory structure. On the contrary, it actually establishes two new bodies – a Financial Stability Oversight Council (charged with identifying and addressing systemic risk) and a Consumer Financial Protection Bureau – and merely abolishes the Office of Thrift Supervision. As impressive as this Act may seem at first glance, most of it still requires detailed regulatory implementation by the US Administration and the various supervisory authorities.
The Association of German Banks is looking to ensure that the lessons from the financial crisis are drawn in an internationally coordinated manner. But even if the G20 governments, the Financial Stability Board (FSB) and the international supervisory bodies seek to achieve such coordination, the dangers of a fragmentation of financial market regulation should not be underestimated. This is why close coordination between the EU and US in particular is a special focus of attention.
The Association of German Banks calls in general for agreement of the ongoing US financial market reform (regulatory implementation of the Dodd-Frank Act) with the reforms in the EU and other major countries and as broad recognition as possible of home-country rules for German and European banks operating in the US marketplace.
The Association of German Banks also actively supports integration of the transatlantic financial markets in particular. Integration targets have been set not only in the informal EU-US financial market regulatory dialogue but also at high political level (EU-US summit; Transatlantic Economic Council [TEC]). Substantial progress has been achieved particularly on mutual recognition of accounting standards (IFRS and US GAAP). However, since the outbreak of the financial crisis the US has neither continued negotiations with the EU on mutual recognition of securities market rules nor, as announced, extended its exemption regime for access by foreign investment services providers to the US market.
Deeper integration of the transatlantic financial markets through increased mutual recognition of market participants’ home-country rules remains desirable. This is easier if national rules follow internationally agreed principles and in this way converge. It is something that should also be taken into account when drawing the lessons from the financial crisis. There is no doubt that the rules must be made more crisis-resilient. Yet this cannot be achieved by countries going it alone, but only through global – and in particular transatlantic – coordination.
