In some cases, the new barriers will amount to simple overregulation by nervous bureaucrats. In others, Buiter says, they will be weapons in international trade battles. The only difference is that these protectionist measures will involve securities and lending instead of goods and services. “Financial protectionism is spreading on a much wider scale,” says Buiter. It is a shift that’s also reflected in increasing complaints from politicians that their own international banks are using that nation’s bailout money to fund loans to foreigners.
Some of the new hurdles will emerge from stern applications of existing rules to new situations. A prime example is the burden on bonds guaranteed by the FDIC. The U.S. offered the guarantees to banks in October to quickly try to stop the tightening credit crunch. The guarantees were intended to encourage investors from anywhere in the world to lend to the banks so that the banks would have money to lend to customers. But the U.S. goal isn’t such a priority for regulators in Britain, whose approval of bond sales would open the door to investors throughout Europe. They won’t let the bonds through without the reams of information about the FDIC and the U.S.
A spokesman in London for the Financial Services Authority, Joseph Eyre, says that is because the FSA is following a Dec. 17 memo from the Committee of European Securities Regulators, of which Britain is a member. The memo says regulators should require disclosures about guarantees as they have in the past—unless the guarantors are from European governments, which are members of the committee. Then, of course, exceptions can be made. The result is that European regulators are quickly approving sales of bonds guaranteed by their governments, a big advantage in raising scarce capital. It doesn’t seem to matter that in the past the regulators allowed the U.S. banks to sell bonds without the new safety provided by the U.S. government.