By Rob Nichols, President and CEO, Financial Services Forum
Bloomberg Brief (link to story)
The United States has been a global financial leader for 100 years. That leadership has amounted to an enormous strategic advantage for the U.S. economy and American businesses, workers, savers, and investors. It is no coincidence that the U.S. economy is the most innovative and productive in the world, and that our capital markets are the world’s most dynamic, most liquid, and most efficient.
Remaining a global leader requires a supervision and regulatory framework that ensures that our financial system is effective and innovative, yet also more stable and resilient. U.S. regulators have worked hard to respond to the recent financial crisis in ways that preserve those essential features of leadership. Further out we will have a sharper sense of the impacts, costs, and unintended consequences of the new regulatory architecture. But, in the near term, it’s critical to keep in mind what’s at stake.
Deep, liquid, efficient capital markets allow companies to raise capital quickly and cheaply, and provide investors a wide variety of investment alternatives at low cost — all of which promotes faster economic growth and job creation. Global financial leadership is an advantage our nation has worked hard to achieve, and is a competitive asset we must work hard to preserve. Over the course of our nation’s history, we have experienced financial problems, but we’ve worked hard to fix them.
Global financial leadership also requires a robust system that includes financial institutions of all sizes, business models, and areas of expertise. The U.S. economy is the world’s largest and most diverse and requires an equally diverse financial system. Smaller institutions effectively serve the needs of certain aspects of our economy, while larger institutions serve the needs of other aspects.
The unique value of large institutions includes the sheer size of credits they can deliver, the array of products and services they offer, and their geographic reach – capacities that smaller institutions simply don’t share. Such size and scope-related capabilities are particularly important to globally active corporations and contribute directly to economic growth and job creation. Large banks, active in many countries across the world, also help integrate global stock, bond, and foreign exchange markets, making those markets more modern, liquid, and efficient. And large, globally active banks expand the supply of credit and other financial services to emerging market economies, making important contributions to the expansion of trade flows and opening foreign markets to U.S. goods and services.
Without question, banking companies — of ALL sizes and by their very nature — must manage risk. The effective supervision of banks, therefore, is an important policy issue that deserves thoughtful debate. Policymakers are right to insist on close oversight of the sector and increased transparency. But that debate should also include a forthright and rational discussion of the unique and significant value that large banking companies deliver — value our economy would forfeit to other countries if even well capitalized and well-managed large banking companies were simply dismantled.
The current debate on this topic includes some unfortunate rhetoric that doesn’t stand up to scrutiny.
For example, in the wake of recent events, some have asked: “Isn’t this 2008 all over again?” or “Aren’t things essentially the same as before the crisis?” and, “Aren’t the banks simply too big?” The answer to each of these questions is a decided “No.”
While the debate has continued about government rules and regulations, the banking industry has moved aggressively to strengthen institutional safety and soundness and the broader financial system. As a result, the U.S. financial sector is in a much different, and far better, place than before the 2008 crisis.
The U.S. banking industry is focused on the future. It has implemented major reforms to serve customers, depositors, and borrowers faithfully; to strengthen the world’s best capital market; and to effectively support the financial needs of the world’s largest, most diverse, and productive economy.
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The Financial Services Forum is a non-partisan financial and economic policy organization comprising the CEOs of 19 of the largest and most diversified financial services institutions doing business in the United States.
The purpose of the Forum is to pursue policies that encourage savings and investment, promote an open and competitive global marketplace, and ensure the opportunity of people everywhere to participate fully and productively in the 21st-century global economy.