Since the crisis, global regulators have spent years thrashing out frameworks for new financial infrastructure. That has been a painful process, as much for those writing the regulations as those interpreting them, and some of what has resulted is deeply flawed. But the ethic of cooperation has helped to firm up finance, and it would be foolish to unwind it all now.
Both Carney and his deputy Jon Cunliffe have paid tribute to the success of global cooperation — perhaps not surprising, as Carney has chaired the Financial Stability Board, one of the major forums coordinating global regulatory efforts, since 2011.
In a February speech, Cunliffe praised the “shared incentives, dynamic common standards such as the PFMI (principles for financial market infrastructure), the assurance provided by peer review and by the IMF, and... a degree of collective oversight and effective cooperation between supervisors and central banks.”
But this knowledge sharing and constructive criticism could quickly be lost if regulators follow their political masters towards atomised nationalism. Nowhere is that more obvious that in clearing policy.
As the UK extracts itself from the European Union, debates about clearing location on the continent have reignited. European Commission draft proposals released this month would create a mechanism for the break-up of London clearing activity, allowing for the forced relocation of euro-denominated products into EU-domiciled clearing houses.
The spectre of relocation has already heightened the likelihood of copycat moves, with Commodity Futures Trading Commission acting Chairman Christopher Giancarlo raising the possibility of similar moves by US regulators if Europeans pursue what Cunliffe termed “currency nationalism”.
In the US, Sharon Bowen’s resignation last week from the CFTC has left Giancarlo the sole commissioner at the regulator. Bowen’s frustration at the slow rate of vacancy filling by the Trump administration hinted at the increasing presence of politics in regulators’ day to day considerations.
These are worrying signs. Global regulators have maintained a network for information sharing and ideas testing, the loss of which could only have negative impacts on capital markets.
International cooperation does not mean regulators should be unaccountable. They must justify their decisions to electorates and answer for their mistakes. But moving away from cooperation seems likely to create more issues to answer for.
Given the real economy implications of financial regulation, a forum for peer review is one of the best tools available for implementing effective rules. Don't let nationalism, in whatever form, threaten it.