Canada Lobbies Against US Banking Reform
By Murray Dobbin - Counterpunch
You can say one thing for the powers that be in the banking industry. They’ve got a lot of nerve.
This past week, our own finance minister, Jim Flaherty, along with Mark Carney, the Governor of the Bank of Canada, came out strongly in opposition to a modest proposal to regulate the U.S. banking system.
Their interventions followed a concerted effort by American bank lobbyists to spark international opposition to U.S. regulatory reforms.
What a shameful spectacle! Less than four years ago, the world was holding its breath for fear the crisis in the hyper-deregulated U.S. financial system would cause a second Great Depression. Now Canada and other foreign governments, cheered on by U.S. banking interests, are doing their best to block U.S. legislation that would curb the industry’s worst excesses.
The initiative Flaherty and Carney attacked is a proposal by Paul Volcker, the former chair of the U.S. Federal Reserve. Simply put, the “Volcker rule” would prevent financial institutions — U.S. or subsidiaries of foreign banks — that are backstopped by U.S. taxpayers from behaving like hedge funds and trading for their own account.
Flaherty and Carney are trying to cast their opposition as standing for Canadian regulatory sovereignty. But since all five of Canada’s largest banks drew on emergency loans from the U.S. Federal Reserve during the crisis, the U.S. certainly has a moral argument in favor of being able to regulate the behavior of Canadian bank subsidiaries operating within its territory.
After the financial industry’s speculative bets on the U.S. housing market went sour, U.S. and foreign banks got $1.2 trillion of the American public’s money in emergency loans and $700 billion through the Troubled Asset Relief Program. The banks’ weak defense is that they have paid all the money back — an argument that can be challenged because the U.S. government is still holding the bag for bad deals the banks made with companies like AIG.
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Lobbyists from the U.S. banking industry are visiting foreign embassies like Canada’s and issuing anti-Volcker rule position papers. According to one analyst, “The criticism of foreign governments on behalf of their banks is helping U.S. banks fight the rule.”
Mark Carney, for example, is claiming that somehow the Volcker rule will do irreparable harm to the Canadian government’s ability to sell its bonds and will “undermine the resilience of the Canadian financial system.”
Simon Johnson, a former chief economist with the IMF, called Carney’s criticism absurd. He wrote in the New York Times that he could understand why the big banks would oppose the Volcker rule because they want to continue to engage in high risk/high return activities with the implicit backing of the U.S. taxpayer. Johnson questions, though, why the Bank of Canada would be siding with Wall Street given that the Bank “would ordinarily be expected to take a broader perspective, at least aligned with the social interests of the Canadian population.”
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