Federal Reserve Telegraphs Foreign Firms About Red Tape

The Federal Reserve telegraphed to the markets late last week that foreign financial firms should not expect passes on all new regulatory red tape being implemented through reforms such as the Dodd-Frank, despite how difficult it might be for the US government to keep track. This is preventing a flight away from doing business in the US, and one can be certain that US businesses will be punished in a backlash over the regulation, as happens.

As Fortune writes, “Wall Street is so international now that it has become increasingly difficult to tell which firms are foreign and which are domestic.”

So, when the US cracks down on foreign financial firms operating in the US, they are, in effect, hurting their own small businesses who likely depend on foreign financial firms for credit. Foreign firms doing business have generally purchased a US investment firm with roots already established in the US financial world. Credit Suisse bought DLJ and First Botom; UBS bought Warburg and Paine Webber; Barclay’s notoriously bought Lehman Brothers in late 2008.

The US banking system is an international complex, and Wall Street is merely one of its outlying forts. Foreign firms compose half of the top 10 broker dealers in the US. They even operate in the US freer than do domestic firms: The SEC monitors trading activities of all firms dealing in the US markets. But, the Federal reserve, responsible for bank holding companies, has minimal oversight powers over financial entities.

The Fed is stirring up Deutsche Bank, Credit Suisse, UBS and Barclays, in an infighting that could undermine the already decomposing architecture of the US financial overlay even more-so, such as with the “blowback” of regulating foreign firms already not lending to domestic firms as it is.  A radical option of any foreign firms affected by the increased regulation could be the same as is happening with banks at the retail level: an exiting of the US market. Nobody will deal with the regulation and spying of the ZBig persuasion. If regulations impede operations too much, the firms will simply pack up and head for a kinder host, or at least considerably curtail operations.

Not that the markets should be defended, but to think that government is going to usher in a creative and diverse economy is insane. The regulations being implemented are merely the piling of insanity upon insanity until everything melts in a giant mush spoiling for good whatever was boiling in the melting pot.  Complex financial regulations “lack a coherent design” and are “disabling the flow of credit necessary to fuel economic growth, a report from Allen & Overy said Monday.

The report analyses the impact of future global governance regulations, including Basel III, Capital Requiremets Directive IV in Europe, and the Dodd-Frank act in the US on different areas off credit activity.