Last week marked the fourth anniversary of Dodd-Frank financial reform, the most sweeping since the Great Depression. To avoid another 2008-type financial crisis 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 convoluted global financial system and under-resourced to dispatch daunting duties, some important protections are in place to avoid another economic downfall. Many rules now exist to oversee previously unregulated “dark markets” that had zero supervision. Policies and procedures have been established aimed at preventing systemically big institutions from failing and causing a colossal collapse.
However, unfinished work remains. Global markets are 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 that, just because the United States has implemented some financial regulatory 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 United States were the only nation with new and somewhat strict financial rules, some firms might choose to move business to less regulated nations. Such market migration wouldn’t be good for the United States. 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, Mr. Costner’s character hears a whisper from his Iowa corn field: “If you build it, he will come.” The “he” is disgraced old-time 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.
As in the film, if appropriate financial regulations are built in both the United States and the European Union (together comprising roughly 70 percent 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.
Bart Chilton, a former Commodity Futures Trading commissioner, is a senior policy adviser at the global law firm DLA Piper LLP. He wrote this for McClatchy-Tribune News Service.