Too Big To Fail Is A Thing Of The Past!

Your author was able to attend the 8th Annual European Financial Services Conference in Brussels earlier this week. There were certainly some interesting panelists and contributors, including European Commissioner Michel Barnier.

There were many different perspectives discussed, but as you may imagine, financial services regulations were high on the list.

In the main, these regulations would be aimed at investment banks - rather than retail banks - but ultimately, these guys are major influencers in the stock markets of the world. Even if you happen to be a North American reader, this is important. The US and EU are doing their best to make their legislation comparable. The potential situations are therefore important to any and every investor.

One element that was raised repeatedly was that of stopping ‘regulatory arbitrage‘. In other words, trying to find ways to stop big banks and hedge funds from shopping around to take advantage of the most suitable legal locations. It seems that those at the top of the EU and US financial regulatory agencies believe that this ability to sidestep many rules and responsibilities added to the scale of the financial crisis. They are almost certainly correct.

Another element that ought to make us all worry, was highlighted by David Wright, DG MARKT from the European Commission. Governments around the world do not have the appetite to fix things if they go wrong a second time. In other words, if the structural problems are not resolved, those considered too big to fail will be left to fail. The actual phrase was, “I have it on good authority from very high-level officials in governments around that world that if this happens a second time, all bets are off!”

The sudden resumption in fat bonuses could come back to haunt investment bankers!

These issues have implications for the entire global financial system. Take heed. Think carefully about your personal investments and just how liquid and real they are. Numbers on a screen are just that, numbers on a screen. You can’t eat them if times are tough…

Whilst at the event I arranged an interview with a speaker. Eddy Wymeersch is Chairman of the Committee of European Securities Regulators. I asked him about short selling and the steps required if bankers are to become more responsible.