Reform reading: US, EU banking coordination needed to avoid race to the bottom

Introduction

A daily round-up of analyses and news related to the Dodd-Frank financial reform law.

Transatlantic cooperation – The United States must not delay or weaken financial regulations mandated by the Dodd-Frank law, a top European Union official warned on Friday.

The European Commissioner for Internal Market and Services, Michel Barnier, said that in fact, the EU and Washington need to coordinate aggressive efforts to meet Basel III banking standards in a timely manner to even the global market playing field and avoid a race to the bottom. “Equality and reciprocity are not only justified. They are also necessary,” Barnier said in a prepared speech delivered at the Brookings Institute.

Dodd-Frank delays – The Dodd-Frank Act may never provide the sweeping reforms it promised, if lobbyists and regulators continue to stymie some if its most critical elements, ProPublica reported.

Dodd-Frank requires some 387 regulations to be written by 20 different regulatory agencies, but the tedious rule-making process has pits regulator against regulator and allows Wall Street lobbyists room to step in and haggle for compromises. If U.S. regulators fail to carry out rules to rein in proprietary trading, credit rating agencies, derivatives, and resolution authority for failing institutions, could increase the chances of another financial crisis, it reported.

Bank debt rating – Three major U.S. banks face an increase in borrowing costs as Moody’s Investor Service reviews a potential downgrade of their debt ratings.

The ratings agency said Thursday that government support during the financial crisis has inflated the banks’ ratings, Reuters reports. Since the Dodd-Frank law was passed last year, however, government support for U.S. banks has decreased to such levels that their debt ratings must be reviewed to reflect that shift, Moody’s said.