ARUN PANCHARIYA: COMMENTS TO THE INTERVIEW WITH JAMIE DIMON, CEO JP MORGAN CHASE

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What the global financial services industry would need is a global regulatory institution to regulate a totally global business. The fragmentation of the market regulation and the institution that is the watch dog is one of the main reasons why the financial industry got into the present crisis. As Mr.Dimon says the regulatory process has to be in tune with the political processes. 

The financial industry developed into a global business with a massive size.  RBS in the UK for example had a balance sheet of almost double of the Size of the British economy when it was taken over by the Government. Being global institutions and of this size compared to the economy of the home country self-evident that the local governments by themselves can control these institutions.

As Mr.Dimon is clearly worried about is the effect on the banks and the economy of the new regulations such as Basel III, Dodd Frank and the Paul Volcker rules. The problem with these new regulations and the setting up of new institutions to implement the new rules is that they still tend to be locally based with the effect of skewing competition or harming the good sides of the financial markets such as market making and at the wrong time compared to the business cycle. It is at the top of the next business cycle that these rules needs to be implemented and not when the banks are struggling to survive and the economy is a historical low point with the risk of prolonging the crisis.

Arun Panchariya is specialising in cross border transaction between Asia, Europe and the US 

The Dodd-Frank act – new possibilities in Asia: Comments by Arun Panchariya

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The British weekly magazine, the Economist, has recently presented an interesting overview of some of the consequences of the US Dodd-Frank act. This act was the direct result of the financial crises the autumn 2007.

As most laws of which the intentions are good. One of the problems however is that these intentions are not clearly defined. One obvious goal is to avoid a similar collapse of parts of the financial systems that happened in 2007 and 2008. But also a lot of other goals seem to have included provisions for protecting consumers, protect shareholders, protect against “war” minerals from developing countries, protectionist considerations etc.

This has according to the Economist, created a “monster” that is still growing. A new branch of the legal industry has been created that live very well on this law and this is even before the litigation. This complexity also creates possibilities for creative people to exploit the loopholes in the system while “quality” creativity which means to develop products and services for what the market really needs will be hurt.

It will obviously be much more cost efficient for big institutions and other established and - not at least - well connected institutions to comply to such large and complex regulations. In my view this will further enhance Asian institutions to strengthen its position in the global markets. Especially where it’s a good legal framework and good predictability, the potential for developing new ideas and implement them will have a competitive advantage compared to US institutions.

Arun Panchariya is specialising in cross border transaction between Asia, Europe and the US