The specter of deregulation has returned. With two executive orders U.S. President Donald Trump has signed, key elements of financial market regulation are being put to the test. It is not yet clear whether this means working with a wrecking ball or a chisel. The executive orders contain orders to government departments to work out the details. But the symbolism is clear: Now that the 2008 financial crisis has been dealt with, it's time to begin a new chapter.
The new principles include promoting economic growth and dynamic financial markets. American interests are to be advanced in international negotiations on regulatory efforts. This does not bode well for what are already difficult talks on the conclusion of Basel III.
After the financial crisis, the general consensus was that we must do everything possible to prevent it from happening again. Important regulatory efforts were coordinated at the international level. In Germany, we too acted in accordance with the G20 agreement that "all financial markets, products and participants will be regulated." We can only hope that the new U.S. administration does not call this consensus into question.
We are not interested in a deregulation race.
And if it does, we must prepare for it. If the executive orders trigger a new financial rally, we will face the question: How do we protect ourselves from the risks that threaten us from the United States? We are not interested in a deregulation race. The European Central Bank rightly pointed to the dangers of reducing regulatory standards during a period of expansive monetary policy. A renationalization of regulation would certainly be a bad idea.
But the executive orders also present the opportunity to question the things we have pursued in recent years. For instance, we paid far too little attention to the overall impact of the various regulatory efforts. What do the regulations mean for the real economy and where is there an imbalance between cost and benefit? How can we reduce bureaucracy, especially in reporting systems? We should evaluate regulatory measures more quickly.
The principle of dual proportionality is also important to us. Regulatory intensity should be based on a bank's size and exposure to risk. Unfortunately, this is not adequately put into practice today, which is why it's important to talk about a Small Banking Box, which noticeably reduces regulation for smaller savings banks, credit unions and commercial banks.
We should take advantage of the movement that was triggered by the Trump executive orders, not to promote laxer but in fact more effective and efficient regulation. At the same time, we should not forget an important lesson from the crisis: That greed is a very bad counselor.
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