International Finance Regulation: The Quest for Financial Stability

CHAPTER 6 Assessing Likely Impacts of Regulation on the Real Economy

We have a financial industry that is still not really providing convincing answers to the questions about the meaningfulness of many modern financial products and trading in securities. The questions are getting louder and require new responses.

—Former Deutsche Bank CEO and IIF President, Josef Ackerman

What will be the consequences of those new rules and ratios for the “real” economy? It certainly does not seem that Wall Street will be more helpful to Main Street. Its stability would, however, have serious benefits to the real economy. There is, therefore, no doubt that, despite some unfavorable consequences, the most important expectation that the real economy has is that authorities find a way to ensure that the “Greed and Glory of Wall Street” is contained to avoid further eruptions of banking-initiated crises.

It is also critical for the corporate world that manipulations of interest rates such as the London interbank offered rate (LIBOR) or foreign exchange fixings be chased and sanctioned. This immediately impacts their ability to compete and to be profitable in their own way. Too much of the world's profits have been captured by the financial services industry.

According to Mian's analysis, U.S. financial services companies in the S&P 500 index are expected to report that they earned aggregate profits of $49 billion in the second quarter. That's almost 20 percent of the $247 billion in quarterly ...