We analyze whether the proposals are likely to meet their own stated objectives and consider their likely effect on the global financial system. We argue that these measures amount to little more than a mandatory, inefficient shuffling of corporate entities and business units that will not help ward off future financial crises. At the macro level, both proposals interfere with the ability of global banks to allocate capital and liquidity in the manner they determine to be most efficient. We find that the proposals, therefore, threaten to increase financial instability and dampen economic growth and signal an unfortunate step in the wrong direction.
These proposals underscore the problems with national regulators adopting a parochial, protectionist, or “home country first” approach to regulation. We argue that even poorer outcomes would have resulted from the prior crisis had these proposals been in place at the time. We contend that regulators should instead focus their attention on creating a credible, coordinated resolution process for globally significant firms.
