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Basel III, Dodd-Frank, the Volker Rule, oh my


You be hard pressed to attend any financial services-themed event this year with hearing a range of presentation explaining, warning, commenting on the end of ‘light touch’ regulation.

You can argue all you want about the so-called politically motivated move to ease access to credit and mortgages to people who may not have been best placed to handle refunding all those loans in the US. Or you can the blame it all on ‘evil, greedy’ bankers eager to keep feeding a bubbling, profitable beast with derivative instruments few understood. But all of the above happened, in the Western financial world at least, under the watch of ‘light touch’ regulation – namely in the UK and the US, the ground zero countries for the credit crisis.

The response to all this economic chaos (when the cries of ‘OMG counterparty risk is important!’ were silenced by a massive a bank bailout) was a call to end ‘laissez faire’ regulation. “Watch out banks!”, cried governments and regulators (both of whom were obviously ‘abroad’ with Rebekah Brooks while all this mortgage offering/derivatives trading was going on) “We’re about to open up a whole can o’regulation whoop-ass on your greedy selves!”

Yesterday’s Sungard London City Days opened with a rather bog-standard presentation on these regulations (no real comment, just explanation) from Kathleen Traynor, director of regulation from the Futures & Option Association. Sungard had to turn people away at the door. A 30 minute speech looking at the Mifid review and Dodd-Frank was standing room only. One of the most interesting parts of Traynor’s speech was when she said that people in Washington, DC considered the current state of the, not-quite-launched-yet, Dodd-Frank Wall Street Reform and Consumer Protection Act  to be “stuck in treacle”. This is the same Dodd-Frank which, depending on your view of Western capitalism, will either bring Armageddon or Nirvana to Main Street and Wall Street alike.

Last time I checked it was quite easy to outrun treacle. (However, there are exceptions to this rule)

At the end of the day I sat in on the CVA in Action discussion. The credit valuation adjustment desk generally sits between finance and trading in the front office doling out credit risk adjustments either like cigarettes at an AA meeting (pre-2007) or free Wi-Fi passwords at an industry event (post-2007).

Pawan Malik, MD at Navigant Capital Markets Advisors, commented that during his tenure at Barclays, at the time of ‘light touch’ regulation, the banks regularly brought the regulators in to ‘walk them through our counterparty risk strategy’. To quote Malik “They knew what we were doing.”

Now, I am sure we can all agree that the best regulations are ones cooked as a knee jerk stew seasoned with a dash of political agenda. However, if Dodd-Frank is ‘stuck in treacle’ and the previous regulation authorities were actually paying attention to banks in the 1990s and 2000s – what is happening now?

The delegates at Sungard London City Day were trying to squish into a tiny room to find out. Will cries of ‘Basel III, Dodd-Frank, the Volker Rule oh my!’ reveal cowering lions or wicked witches with swarms of flying monkeys? (it’s Friday).


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