Key decision makers from Hong Kong, Dubai, Vietnam and the European Union took to the stage at the Asian Financial Forum on Monday to discuss the regulatory reaction so far to the global financial crisis of 2007-08.
Carlson Tong, chairman of Hong Kong’s Securities and Futures Commission, moderated the discussion between Klaus Regling, managing director of the European Stability Mechanism; Do Hoang Anh Tuan, Vietnam’s deputy finance minister; and Saeb Eigner, chairman of Dubai’s Financial Services Authority.
The lack of a US panellist was a salient omission given that the Dodd-Frank is the epitome of post-crisis regulation, though delegates will have the chance to see Timothy Geithner, the former US Treasury secretary, give the lunchtime keynote speech on Tuesday.
As it was, the panel of regulators mostly agreed with each other. The financial crisis demanded a regulatory response — and it got one.
“It’s important to remember where we’ve come from,” said Regling, who argued that lax regulation led to the crisis. “There’s always a risk when the pendulum shifts that it might swing back too far — but we had to have a concerted global effort for broader, more comprehensive regulation.”
Regulating an increasingly integrated global financial market is complicated, they all broadly agreed, and will require even greater cooperation among national and regional agencies in the future.
But there was some disagreement over the finer details, with Dubai’s Eigner warning of the unintended consequences of some post-crisis reforms.
“The reforms agreed by the global standards centres, in a number of areas, are colliding with the reforms initiated by individual national governments,” he said. “A very good example of this is the US Foreign Account Tax Compliance Act. Similarly, uncoordinated over-the-counter derivatives reforms in the US and EU are creating serious problems for smaller jurisdictions, and this is particularly the case with the European Market Infrastructure Regulation.”
Eigner made it clear that financial centres such as Dubai and Hong Kong should stick together — he prefaced his comments by drawing comparisons between the two trading hubs — and said that he was pleased when the Hong Kong SFC wrote to the EU commissioner for internal markets to complain about European attempts to impose inappropriate standards and conditions on Asian dealers.
He also questioned whether reforms in the main financial centres had achieved the goal of staving off the next crisis.
“A recent study showed that only 3% of financial service professionals believe that regulations implemented since 2008 have done enough to prevent a future crash,” Eigner said. “Despite all our efforts at macroprudential regulation, ringfencing of retail banking, bank regulation mechanisms and so on, when the next crisis comes, it may do so from an unforeseen direction.”
What matters, said Eigner, is that regulators respond quickly and efficiently to changing market conditions — and that means creating a regulatory infrastructure that is bold and innovative (like the one he oversees in Dubai).
Europe’s response to the crisis has certainly attracted plenty of criticism, not least for its reluctance to embrace unorthodox monetary policies with the same gusto as the US. But Regling defended austerity policies and said that people in Europe “believe more than other parts of the world that fiscal consolidation is an important pre-condition for long-term growth."
The continued fondness for austerity was also shared by Vietnam’s deputy finance minister. “The most valuable lesson [from the global financial crisis] is how to make rules for public debt management, and to make sure the deficit is under 5% of GDP,” said Tuan.
Such attitudes helped Asia to recover from its own financial crisis in the late 1990s, said Regling. “The Asian countries got through their crisis better because they came to the right conclusions: be careful how the financial system develops, try to avoid bubbles, try to avoid too much leverage.”
However, delegates at the Asian Financial Forum were less than convinced. A poll of the audience showed that fewer than 55% agreed that “Europe is on the right track”, though Regling was philosophical about the result: “A year ago, I think the result would have been quite different.”