Craig: How important is convergence? Different territories have different histories and market structures, and so maybe some divergence is normal.
Bowles: Some divergences are normal. In general these should be small. Every territory will put itself first; there is no way to escape that. In the EU there already have to be compromises given that the EU is not one country and has itself internal differences in history and structures. However the international considerations should be kept in mind right from the start, often they can help in reaching the internal EU compromises. That is a process that is not sufficiently developed within the EU itself.
Craig: What are the areas where you think divergence can have the most damaging effect? Do you worry about arbitrage, for example in Asia?
Bowles: Transatlantic cooperation is a good thing for greater understanding but it should not be the tool of trying to shut out or dominate what happens in Asia. Long term that is unlikely to succeed. There was a time when the Asian regulators seemed to play ‘wait and see’ in some areas, now I think they are moving to wanting greater involvement. Of course there are things that we can learn from other jurisdictions too.
Craig: In terms of the global agenda, what are the remaining gaps that need tackling? Have we really addressed the TBTF problem?
Bowles: Too big to fail is still not fully tackled, nor indeed fully understood. The nature of TBTF may vary country to country. Within the Eurozone there is still a lot to learn about the interconnection of banks and sovereigns and how to address the lack of flexibility that monetary union creates. Absence of the ability to depreciate the currency may mean that there are limits to the size of banking sector that can be absorbed in the event of crisis. Others are also wondering whether to some extent this applies to the Eurozone as a whole, that it is impossible to absorb a systemic banking crisis if there is not the ability to use the full range of monetary tools that inevitably lead to devaluations. We all hope that the agreed rules on bail-in resolve many of these problems, and in the limited way in which this has already been tested in the EU there are reasons to be optimistic.
Craig: In terms of the EU, your ECON chairmanship has seen a huge change, both in the development of a banking union and in delivering key regulatory reforms such as Basle III (CRD 4), derivatives (EMIR), hedge funds, credit rating agencies and market abuse. What are the remaining challenges for your successor?
Bowles: The focus in the next five years may well turn much more towards growth and how to promote that. This puts fund management in focus and of course that has already started with the consideration of whether there are TBTF issues there. Undoubtedly there will be fallout from some of the vast amount of regulation that has already been done, sometimes in haste, and there are massive amounts of rules, our so-called level 2 measures, that have yet to be completed and go through scrutiny procedures. Alongside that there will be all the implementation of banking union and further development of the monetary union.
Read the report: "The Danger of Divergence: Transatlantic Financial Reform & the G-20 Agenda," produced through a partnership between Thomson Reuters, the Atlantic Council, and TheCityUK, examines the sources, risks, and costs of divergence in transatlantic financial regulation and calls on the US and EU to reenergize efforts to coordinate implementation of the G-20 regulatory agenda.David Craig is President, Financial and Risk, at Thomson Reuters Corp. David joined the company in 2007, serving first as Chief Strategy Officer. He subsequently became founder and President of its Governance, Risk, and Compliance business. Previously, he was with McKinsey & ... View Full Bio