It took nearly two years after the nation’s economic meltdown for Congress to finally pass a law reining in some of the most reckless Wall Street practices that caused the crisis. The financial reform law created a strong new Consumer Financial Protection Bureau, required transparency and accountability in derivatives trading, and set new limits on speculation by banks.
The bill didn’t hit what should have been the most obvious target — limits on bank size and leverage to ensure no bank will ever again think it can take on unlimited risk because, if it gets into trouble, the government will simply decide it's ‘too-big-to-fail’ and taxpayers will have to bail it out once again.
And, even as regulators begin to implement the reforms we did win, ultra-risky trade agreements that spun out of the deregulatory fervor of the 1980s threaten to help Wall Street’s allies roll back any financial protections.
This week, Consumer Watchdog joined Public Citizen, U.S. PIRG, Americans for Financial Reform and Citizens Trade Campaign to call for an end to US support of these efforts, and 125 international groups wrote to demand G-20 action to prevent WTO agreements from undermining countries’ ability to protect their own citizens from financial disaster.
Very simply, these deregulatory trade agreements (written when Alan Greenspan was still known as the Maestro and no one listened when advocates warned that banks would happliy risk failure for fantastically rich short-term profits) could prohibit countries from requiring banks to be safer.
From the letter:
In the aftermath of the global financial crisis, governments around the world as well as an unprecedented array of scholars have called for improved regulation as a means to avoid future crises and restore global financial stability. In this context, it is especially alarming that any country would request further WTO financial services commitments without first securing serious reforms to the WTO’s rules on financial services, which numerous government officials, leading economists, financial experts and trade lawyers have cautioned could undermine financial regulation.
These experts note, for instance, that the provisions of the WTO’s General Agreement on Trade in Services (GATS) prohibit commonly recommended financial policies, including size limits on banks, “firewalls” between banking and investment services, bans on risky financial services, and capital controls and other capital management mechanisms. As a young Treasury Department official in 1990, now-Treasury Secretary Timothy Geithner authored a memorandum highlighting many of the ways in which these rules could conflict with domestic financial regulation. Indeed, the United States promised in its WTO schedule of services commitments to “reform” the Glass-Steagall Act which established a firewall between investment and banking services. Most recently, WTO signatory Barbados tabled a paper at WTO which calls into question the WTO compatibility of various measures under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act including measures to control the size of “too big to fail” banks.
…The United States and much of the world are still reeling from the 2008 global financial crisis, which has created the greatest unemployment crisis in the United States in decades. In various fora – from national legislatures to the G-20 to the UN – governments have promoted reregulation of the financial sector. In this context, it is inappropriate for the United States to be seeking WTO commitments that could lead to greater financial deregulation. In the absence of changes to the WTO rules to limit constraints on the use of common non-discriminatory regulatory tools and insert a meaningful safeguard for prudential regulation, further increased financial liberalization under the existing WTO rules is diametrically opposed to the global call for improved financial regulation.
Here at Consumer Watchdog, I don’t often take the time to write letters to Ambassadors in Geneva. There are enough consumers struggling to make ends meet a little closer to home. But the failure to fix international agreements that could undermine basic consumer protections against the next financial crisis is too much to ignore.
Download the letter here.