On May 2, the Atlantic Council’s Global Business and Economics Program hosted an off-the-record roundtable of financial regulators, experienced attorneys, and leading academics on international financial reform with the first vice president of the European Parliament, Gianni Pittella. As the European Parliament’s point person on Europe’s banking union efforts, Dr. Pittella was traveling to Washington to learn best practices from his American counterparts. The discussion focused principally on the implementation of the Volcker Rule separating proprietary trading from typical banking services and the treatment of European banks’ US operations. The discussion was moderated by Chris Brummer, project director of the Atlantic Council’s Transatlantic Finance Initiative.

Throughout the course of the ongoing Eurozone sovereign debt crisis, many weaknesses in the European banking system have been revealed and exacerbated. In order to restore market confidence in the overall stability of Europe’s financial sector, there is a clear need for banking union within the common currency area and a single supervisory mechanism responsible for all Eurozone banks.

US participants in the meeting gave an overview of the history of the American banking sector leading up to the crisis, and described how the Dodd-Frank Act, and the Volcker Rule in particular, were meant to prevent retail banks from overleveraging by banning proprietary trading by these institutions. 

On a practical level, the Volcker Rule was discussed in terms of its complexity and difficulty of implementation, as well as its superiority (or not) to other alternatives. On a conceptual level, Campbell Gibson of the Treasury pointed out that the Volcker Rule is “not inherently a risk-based prohibition,” implying that perhaps instead of a moralistic prohibition against proprietary trading, the issue should be framed more in terms of acceptable levels of risk.

Participants also discussed how foreign bank operations have been historically treated in the United States, via a flexible system where banks are able to operate according to the standards of their home countries (in the area of capital requirements, for example). However, the US Federal Reserve’s recently proposed rules for foreign banks requiring them to abide by the same regulations as their US counterparts have created significant transatlantic tension tensions that need to be addressed at the highest levels.

Clearly, the unprecedented nature of the crisis and the increased interconnectedness of the global financial marketplace present a new set of challenges requiring international cooperation and common solutions.

The discussants concluded that the importance of continued transatlantic dialogue and cooperation, hopefully leading to a harmonized approach to transatlantic regulatory affairs, demands an institutionalized approach to international dialogue. To this end, they suggested the implementation of a permanent transatlantic dialogue between regulators, legislators, and market participants on finance, hosted semiannually in Washington and Brussels.

Under the Transatlantic Finance Initiative (TFI), the Atlantic Council provides a platform and opportunity for regulators and financial market participants to better understand the nature of these challenges, and to work towards common solutions and policy action. Although a number of regulatory forums provide opportunities for transatlantic information sharing and communication, this effort will provide the first sustained forum bringing together high-level government officials on both sides of the Atlantic with diverse private sector and non-governmental interests.

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