With Congress in recess for a district work period this past week, it has allowed us to offer a greater focus on certain aspects of international financial regulation, and how those efforts may eventually be harmonized with the Dodd-Frank reforms.
With regulators on multiple continents attempting to institute financial regulatory reform, the line between harmonization and arbitrage is often a thin one. For example, some components of the financial services industry in Europe are asking its own regulators to slow down and consider the implications of their fast and furious (by European standards) rulemaking on the still recovering economy. However, with the EU lagging considerably behind the US in terms of enacting broad scale reforms, the possibility for regulatory arbitrage is very real and appears to be a concern of both regulators and those in the industry. Therefore, it was not surprising that CFTC Chair Gary Gensler testified before the European Parliament this past week, and pled for an EU effort to reconcile the cross-Atlantic regulation of swaps markets, so as to avoid regulatory arbitrage to the detriment of U.S. firms and the U.S. economy. That said, there are areas where the Europeans appear to be ahead of the US, for example giving regulatory approval for the use of CoCo’s for both compensation and capitalization. Additionally, the EU system is much more hospitable to the use of covered bonds, though the U.S. may also soon have its own covered bond market, if legislation by Reps. Garrett (R-NJ) and Maloney (D-NY) can make it out of Congress and onto the President’s desk.
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