For a couple of weeks I have been writing about banking and regulation and the possibility, make that likelihood, that a Democratic regime in the US will be looking at an extensive set of new regulations. Is the financial services industry making any effort to get out in front of this?
Not as far as I can see.
Earlier this week the FT reported that regulators are looking at international cooperation to develop some standards so they won’t get gamed by financial firms. Today the FT’s Gillian Tett, one of my favorite finance writers, says bankers don’t see a regulatory threat.

“ In normal times, bankers tend to be pretty cynical – even scathing – about what these regulators might think. (Indeed, one top representative from PWC had the temerity to declare in Cannes this week that the industry already had the regulators “under control”, although he noted the European parliament was less malleable.)”

The NY Times today reports that not just the Richmond Federal Reserve president but also his counterpart in Philadelphia are expressing concerns about the bailout of Wall Street. Some of the district Fed presidents who represent the real economy might lean on Washington and New York to put some rigorous controls in place. After the Greenspan fallout, I think the regional bank heads will be less inclined to accept central leadership in awed silence.

“Take the matter of the capital treatment of trading books,” notes Tett. “In recent weeks, some Western supervisors have conducted intensive analysis on banks’ trading books and discovered, to their horror, that some banks have been exploiting so many regulatory loopholes in recent years that they have got away with posting virtually no capital reserves against assets, such as the senior tranches of CDOs.”

I am still looking for signs someone on the industry side is looking at this seriously. Will let you know if I find any signs of intelligent life.

Filed under: Technology