Nov 11, 2012

In bed together

I am a bit puzzled about the lack of reorganisation and regulation of the financial sector. Or better said, I am a bit puzzled why a seemingly vital element shaping the lack of progress receives so little media coverage. Or is it just my imagination and not really a vital element?

There is enough support to reign in the power of banks, yet they seem to get away with the mess they inflicted upon the world scot-free. Governments appear to value the financial sector’s interests much higher than that of ordinary citizens. TBTF is still as present as before, with the world’s largest banks remaining very unstable. National governments largely seem to ignore BIS recommendations for tighter global rules. Why? I think there is a very strong geopolitical component to it. I would even say that this is quite an obvious one, though strikingly enough one I hear very little about.

The limited response of many national governments appears to a large extent the result of geopolitical considerations – see also a post from two years ago. I think that many governments assume that the size of their banks and financial sectors is proportional to their geopolitical power. Hence, what would the UK’s geopolitical input be without the City? (Sustaining tax havens may actually relate to a similar way of thinking.) Politicians fear that if they break up their banks, implement stricter regulation that favours society and customers over the banks, they jeopardise their geopolitical power. What if China would have bigger banks than Wall Street? Would this equally correspond with a difference in geopolitical power? And what are the financial implications of a decline in geopolitical power? I don’t know. What however strikes me is that this isn’t part of the discussion. Commentators hardly address this issue. Is it too abstract, too obvious or do they just not connect the dots? And what about quantifying and assessing the (dis)advantages of geopolitical power for ordinary citizens. Or is aspiring and maintaining geopolitical power more a nationalistic trip than that it pays off economically? Apart from Jamie Dimon arguing that implementing the BIS’ new global bank rules would be anti-American, you also hear very little about whether financiers use this as an argument in negotiations. Maybe they don’t need it, because governments already share the view that they are in bed together. But still, it strikes me that this isn’t addressed more thoroughly. I, for one, would like to read more profound analyses about the correlation between – and (dis)advantages of – the size of banks and geopolitical power.