Wall Street’s Global Race to the Bottom

Wonder what’s happening with bank reform? Watch your wallets.
by Robert Reich - Tuesday, October 5, 2010 by RobertReich.org

Having created giant loopholes in the Dodd-Frank law recently passed by Congress (keeping “customized” derivatives underground, for example), fighting off attempts to cap the size of the biggest banks, and keeping capital requirements relatively modest, Wall Street is now busily whittling back the rest through regulations.

Squadrons of lawyers and lobbyists are now pressing the Treasury, Comptroller of the Currency, SEC, and the Fed to go even easier on the Street.

Their main argument is if regulations are too tight, the big banks will be less competitive internationally. Translated: They’ll move more of their business to London and Frankfurt, where regulations will be looser.

Meanwhile, Wall Street is warning Europeans that if their financial regulations are too tight, the big banks will move more of their business to the US, where regulations will be looser.

Two weeks ago, after the Basel Committee on Banking Supervision (a global financial regulatory oversight body) came up with a new set of rules to toughen bank capital and liquidity requirements, European officials threatened to get even tougher. They approved a new system of European regulatory bodies with added powers to ban certain financial products or activities in times of market stress.

This prompted Lloyd Blankfein, CEO of Goldman Sachs, to issue — in the words of the Financial Times — “a clear warning that the bank could shift its operations around the world if the regulatory crackdown becomes too tough.”

Blankfein told a European financial conference that while Europe remains of vital importance to Goldman (with less than half of the bank’s business now generated in the U.S.), the introduction of “mismatched regulation” across different regions would tempt banks to search out the cheapest and least intrusive jurisdiction in which to operate.

“Operations can be moved globally and capital can be accessed globally,” he said.

So the race to the bottom is now official. Wall Street will set up its casino wherever financial gambling is least regulated.