Global inconsistencies and industry resistance are clouding the outlook for world financial regulation reform in two key areas -- swaps oversight and bank capital, both set for debate this week.
More than two years since the devastating 2008 banking crisis, regulators from Washington and London to Brussels and Singapore are tightening the screws on high finance, with large Wall Street firms already moving to comply with new laws.
Yet regulators' efforts are moving on different schedules and along sometimes diverging tracks, with much at stake for global giants such as JPMorgan Chase, Bank of America, HSBC Holdings and Goldman Sachs.
The lack of an international regulatory framework is a big issue. It allows banks to play nations off against each other by threatening to move their business elsewhere, while underscoring basic logistical challenges. How, for example, can national agencies police banks that are transnational?
Such questions are not new, but on few fronts are they more problematic at the moment than in policing the $600 trillion off-exchange swaps markets, and in forcing banks to hold more capital on their books to better handle future crises.
Both initiatives threaten existing business models and profits in the financial industry, which is working hard to protect itself behind a time-tested veil of talking points about unintended consequences and saving jobs.
In the United States, that means pushing back -- largely at the implementation level now that 2010's Dodd-Frank reforms are the law of the land -- against scores of new swaps rules.
In Europe, the swaps crackdown is also being contested, as is an effort that is being coordinated in Switzerland to raise the capital standards of the world's largest banks.
Against this backdrop, the U.S. Commodity Futures Trading Commission will meet on Tuesday to focus on swaps rules.
There is some legal uncertainty surrounding July 16 and derivatives contracts, including swaps, said Brian Gardner, policy analyst at financial group Keefe Bruyette & Woods.
New swaps rules mandated by Dodd-Frank are supposed to take effect on July 16, but many still have not been finalized and probably will not be completed in time. Will pre-Dodd-Frank rules end on July 16? What should swaps markets do?
Answers to these questions have already been provided by the U.S. Securities and Exchange Commission. The CFTC is acutely aware of the issue and may signal on Tuesday how it intends to address the problem, Gardner said.
CFTC Chairman Gary Gensler will testify on swaps before a U.S. Senate panel on Wednesday, with European Union ambassadors meeting the same day to explore a political deal on swaps.
Concerns were spreading last week among policymakers of transatlantic divergence and delay on swaps oversight. Failing to rein in swaps could expose the world economy to a replay of 2008, when credit default swaps played a central role in crises at Bear Stearns, Lehman Brothers and AIG.
At the end of the day, I don't know how much this stuff matters because there are so many ways to go out and take a lot of risk with derivatives, said Simon Johnson, business professor at the Massachusetts Institute of Technology and author of 13 Bankers, a recent book about the crisis.
The broad issue of international regulatory reform will be discussed on Thursday by a U.S. House of Representatives panel, with the heads of major regulatory agencies testifying, among them Federal Deposit Insurance Corp Chairman Sheila Bair.
Bair's agency is scheduled to meet on Tuesday to finalize new Dodd-Frank rules limiting bank holding companies from holding less capital than their federally insured bank units.
Plenty of discussion, but few decisions, are expected next week on another topic -- restricting commodity market speculation. A European Commission conference on this is set to begin on Tuesday in Brussels.
(By Kevin Drawbaugh, editing by Matthew Lewis)