Harmonizing Global Regulations: Joe Knows

In a post a few months back, I offered a series of policy recommendations given what I had observed during the credit crisis:

Is the financial system somewhat broken and in need of reform? Absolutely. But is the increasingly liberalized system in place today an essential element of a healthy, integrated and global financial marketplace? I think the answer is also a resounding yes. So where have things broken down, and what can we do to fix them? Here are some ideas:

1. Increase transparency among regulated institutions
2. Homogenize global accounting standards
3. Homogenize global regulatory frameworks
4. Aggressively strip conflicts of interest out of the system
5. Clarify the roles and responsibilities of fiduciaries
6. Develop common sense compensation policies and practices

Today, Josef Ackermann, the CEO of my former employer Deutsche Bank, came out with a subset of my prescriptives when speaking at a conference (as reported by Thomson Financial News):

'The nationalistic approach (to regulation) is just too narrow ... the crisis has clearly revealed, not caused, this fundamental flaw,' he said, referring to the drought in credit markets sparked by bad mortgage debts in the U.S.

Speaking at a conference here on financial market regulation hosted by the London School of Economics and Deutsche Bank, Ackermann also acknowledged the importance of transparency to restore confidence in markets -- but he said there must be limits...

Meanwhile, accounting standards and practices should also be harmonized for complex financial instruments, Ackermann said. The differences between U.S. GAAP and IFRS regulations are significant, he added.

Joe hit my top three dead on. He is at the helm a ~$1 trillion (asset) global behemoth, operating in something like 100 markets and jurisdictions every day. He knows the difficulty, first hand, of having to deal with such a complicated amalgam of rules, regulations and standards. It places enormous friction on global transactions and doesn't really protect investors any better than under a standard, global, common sense regime. It is possible for countries to maintain their unique identities, even if their accounting rules and market regulations are similar to those of their neighbors. While market efficiency has grown along with global capital flows and market liberalization in general, disparate rule sets continue to place a tax on investors and advisers alike.

And it is high time that the leaders of nations get serious, get busy and get to work hammering out common standards. Because the markets need all the help they can get. And this is a step in the right direction.

Comments

[Agoracom]

Roger, I hear you. I believe some of these things can be achieved (i.e. greater transparency) but am not optimistic when it comes to global harmony of rules.

The ultimate harmony will/should ultimately come from the markets that punish bad/stupid/greedy behavior by walking away and finding other place for their money.

Keep it up Wall Street. Your damage to financial markets rivals George's damage to international relations.

Sorry for venting Roger. I'm frustrated with the depths to which greed has driven Wall Street and don't think any set of rules will make that much of a difference to people that are bent on getting around them.

I'm a capitalist and like to make a buck as much as the next guy....but I don't need rules to tell me when I'm crossing the line. That ship sailed when I turned 10.

What we need is leadership and integrity. A captain of the industry that others will look up to and follow. Right now, the only captain we have is "$$".

It frankly makes me sick and I assure you I'm not an isolated case.

Regards,
George