Why ‘America First’ is bad for American bankers

An “America First” trade-in-goods policy means a similarly protectionist U.S. approach to trade in finance, including banking. However, such a financial trade policy would not construct impregnable armor that strengthens the U.S., but would rather be something akin to Superman’s “Fortress of Solitude.”

After having cut himself off from the rest of the world, Superman would return from his fortress to the civilized world feeling refreshed. But that’s just in the comic books. In real life, a Fortress of Solitude for U.S. banking would lead to the lowest common denominator of regulations imposed differently by each country, which in turn would quickly crumple the financial stability on which even the smallest community banks depend.

One day after Federal Financial Analytics issued a brief on increasing protectionism in global financial services trade — which was reported on by American Banker — the European Union’s top finance official made very clear that the EU would retaliate if the Trump administration were to divorce the U.S. from the cross-border financial regulatory framework.

These comments might lead one to assume that Europe is determined to maintain its own Fortress of Solitude from banks in the U.S. and the U.K. — which is experiencing its own protectionist wave with Brexit — that EU officials fear would be poorly regulated. But in fact, the EU’s regime is often less stringent than either the U.S. or U.K. Even more importantly, it’s completely dysfunctional on the most critical financial-stability question of all: how to ensure that weak banks fail without taking their sovereign governments along for the ride.

 

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