It’s always cool when two different things come together to make you think. That’s exactly what happened on my commute this morning as I listened to David Bowie’s much-underrated album, Earthling. Just as I read another piece about the US election, my ears were treated to the classic track “I’m afraid of Americans”. I will leave you to listen to the song yourself, but it did get me thinking about how the US and Europe may be going in completely different directions in terms of financial regulation. Most pundits seem to think that the Trump victory is a good thing for banks as the language from the Trumpistas is all about cutting regulation and maybe even repealing Dodd-Frank itself. Europe, on the other hand, is full steam ahead with making markets “safer” through regulation.
Given that our industry is essentially global this dichotomy can only be a bad thing. Just look at how many years it has taken the CFTC and ESMA to still not agree on margin equivalence rules for derivatives, or at the upcoming squabble over transatlantic payments for research. Now imagine if the two sets of regulation really were poles apart. Navigating (or arbitraging) your way through them would be a nightmare. And, of course, what will plucky Britain do now that it is to leave the EU? Will it stick to equivalence with Europe in order to protect passporting rights, or will its head be turned by the freewheeling Americans.
Since the repeal of Glass-Steagall, financial markets regulation was all about reducing the friction in trading. This was overdone to the point that the world economy then inevitably slipped up on a giant GFC banana skin. A lack of global consensus on regulation for such an internationally entwined industry as finance can only be a good thing for the lawyers and consultants.