The Case Against International Financial Coordination
CAMBRIDGE – When US President Barack Obama announced in late January his intention to seek tough new rules for banks, he wasn’t expecting to make friends on Wall Street. We will henceforth prevent banks from trading on their own account and from growing too large, Obama declared. The internal battle within the Obama administration seemed to have been won by Paul Volcker, the impressive and outspoken former Federal Reserve chairman who has long been a critic of financial innovation.
Unsurprisingly, Goldman Sachs and other Wall Street firms are dubious about the “Volcker rules.” So, too, are the Republicans in Congress, along with some Democrats who feel that the scheme has come too late and may interfere with other reform efforts under way, as watered-down as those initiatives may be. Such domestic opposition weakens the prospect that Obama’s proposals will ever become law.
But the international reaction was less expected. Obama’s announcement received a decidedly unsympathetic reception from Europeans, who perceived his initiative as a unilateral move that would undermine international coordination of financial regulation. The announcement had come without international consultation. It also seemed to violate earlier agreements to cooperate with other nations through the G-20, the Financial Stability Board, and the Basel Committee on Banking Supervision.