Update financial reforms: roll-back at full steam

The outlook on financial reform through the G20 is getting bleaker every day. Even though some reforms agreed upon at the G20, such as Basel III for bank capital requirements, are progressing (with remaining gaps on the ‘total loss-absorbing capacity’)(opens in new window) , many observers, including German Finance Minister Wolfgang Schaeuble, warn of a new financial ‘bubble’ which could lead to a new crisis(opens in new window) . The IMF’s World Economic Outlook also includes concerns(opens in new window) about rising debt levels, particularly in low-income countries and in China (which, however, still has a much lower official debt to GDP ratio than many western countries), as well as growing inequality.

Contrary to such concerns, the regulatory roll-back is already at full steam. In the United States, Americans for Financial Reform has recently identified no less than 19 reform proposals by the Trump administration that harm financial oversight and stability(opens in new window) . One measure already taken on 29 September 2017 was to end the “systemically important financial institution” status of the American International Group (AIG)(opens in new window) , the insurance company that was at the core of the 2008 financial crisis. In the European Union, the “bank structural reform” law proposal was officially thrown out of the EU reform package(opens in new window) , which aimed to separate bank activities along retail banking and risky investment activities, after it became clear that no deal would be possible in the foreseeable future between the EU member states and the European Parliament. Ending the “too big too fail” status of large banks was one of the G20’s promises after the financial crisis, but it has now fallen apart at EU level. As Finance Watch commented, “Ten years after the global financial crisis started, the EU’s banking system is unfortunately still not resilient.”(opens in new window)