The US repelled EU proposals on common rules for banks

First round of the EU/United States trade and investment negotiations: Stakeholder event, 10/07/2013, (EC Audiovisual library).

The European Commission and more precisely the European Commissioner Michel Barnier fights a battle in two fronts over the financial sector’s future. One internal with Germany on EU banking union and another one external with the US on common rules for banks. Understandably in both fronts he has the full backing of the Commission and its President Manuel Barroso. Let’s take one thing at a time.

The Germans protect their banks

In the internal front the confrontation is around the character of the future EU Banking Union and its pillar, the bank resolution mechanism. The Commission has proposed a strong central bank resolution authority under its own roof, with the EU’s executive arm to have the last word on which bank should be resolved. Germany is strongly opposing this prospect. Currently the issue has been scheduled to be discussed and decided upon in the EU two legislative bodies, the European Parliament and the European Council.

Most likely there will be no further frictions over this crucial subject until the German elections of 22 September. The reason is that neither the Commission nor the German government have an appetite to see this topic acquiring larger dimensions and probably become an electoral issue. In any case Germany will be protecting its banks, despite the fact that Berlin insists that they don’t need it. As a result Barnier’s internal battle will be decided in a few months.

The easy part

As for the Commissioner’s external confrontation it just commenced yesterday in Washington where Barnier is on official visit. The European Commissioner started his visit in the US with a relative easy success. He and the United States Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler announced a ‘Path Forward’, regarding their “joint understandings on a package of measures for how to approach cross-border derivatives”. In reality this means nothing. If the two sides really wanted to regulate this hundreds of trillions over the counter business, the agreement would have been about measures and not ideas.

In any case yesterday’s agreement between the Commission and the CFTC over a ‘Path Forward’ obviously lacks any concrete content and what there is to it seems to relate rather to goals rather than measures. According to a Commission memo it “responds to the G20 commitment to lower risk and promote transparency in the over-the-counter (OTC) derivatives markets, which were are at the heart of the financial crisis. The CFTC and the European Commission share a common objective of a steadfast and rigorous implementation of these commitments. Together with the European Securities Market Authority (ESMA), the European Commission (EC) and the United States have made significant progress in their regulatory reforms”. It is more or less a citation of targets. On top of that both those bodies, the Commission and the CFTC, don’t have any legislative mandate.

To be noted though that the European Commission has already threatened 13 giant banking groups and their two support bodies {Bank of America-Merrill Lynch, Barclays, Bear Stearns (now part of JP Morgan), BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, UBS and the Royal Bank of Scotland, Markit, a financial information firm, and the International Swaps and Derivatives Associations (ISDA)} with a 10% fine on their global turnover, for forming a cartel and setting prices in the over the counter trade of Credit Default Swaps and Derivatives.

Breaking news

However the breaking news came from Barnier’s speech in the Brookings Institution, one of the leading US think tanks. The European Commissioner delivered there a speech entitled “Interdependent swaps markets need interactive cross-border rules”. Those of the US financial industry present must have started already feeling uneasy only by hearing the title of the speech. It is well-known that the American bankers and financiers despise any rules binding their free riding industry, let alone international ones.

Barnier however became more concrete and asked for the inclusion of financial regulation issues in the ongoing negotiations between the EU and the US for the conclusion of a free trade and investments bilateral agreement. He said “This brings me to transatlantic trade in general. As you know we launched our EU-US trade negotiations last week. These are about growth and leadership. Growth in terms of our economies and jobs for our citizens. Leadership because we can find solutions to trade problems that we can’t find in multilateral discussions. Those solutions will carry weight because they would apply to half of the world economy. They would form a good basis for future global discussions when the time is ripe. The EU is committed to including financial services regulation in this growth and leadership agenda”.

Before hearing that, the American bankers must have been at ease, probably enjoying the French accent of the speaker. The agreement between the CFTC and the European Commission of that same morning was about ideas and goals, no concrete measures there. So nothing to fear. All of a sudden however this EU Commissioner proposed to the US to agree and introduce concrete rules on the sacrosanct American banking and financial industry, operating in complete liberty. The alarms sounded loud, and the answer came swiftly not from those at present, but from the most competent lips, the U.S. Treasury Secretary, Jacob Lew.

He stressed that “prudential and financial regulatory cooperation should continue in existing and appropriate global platforms, such as the G-20, Financial Stability Board, and international standard setting bodies, consistent with existing ambitious international timelines”. In short Lew told Barnier that the US-EU talks for a trade agreement is not the platform to discuss finance. As if the US banks do not belong to the real world but to a higher level of existence. On top of that Barnier probably learned from the Americans that the trade talks are already closing…no room for anything more in it…

As everybody knows, the international fora the US Secretary proposes would never arrive at discussing, let alone adopting and introducing concrete rules applicable on the global financial/banking industry. Of course the G-20 leaders when getting together talk loudly about the problems the financial industry creates to the real economy and the real people. They don’t forget that real people also vote. But to come up with concrete ideas and introduce strong measures globally to arrest the rampant bankers, and stop them from usurping other people’s money? No sir never! We live in a free world! What did you think?

In short Barnier is to lose the battle with the US. Let’s hope that he will win the confrontation with the Germans. Any how he must have understood by now that what some big countries cherish more today is their…banks.

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