Working in change management, as a specialist in investment banking, the single piece of legislation that I am referred to by management consultants the most (everyday in fact) is the Dodd-Frank Act, which was America’s principal response to the banking crisis.
No-one can deny that after the catastrophic economic events of 2008 changes needed to be made and greater regulation of the financial services was required. It is my firm belief that, had it not been for the intervention of governments and central banks around the world, the pack of cards would have all come falling down and the capitalist backbone of Western society that has endured for over a century and has led to perhaps the greatest prosperity and wealth that the human race has ever known would have come to an end. To put it bluntly capitalism failed, the free market required saving from itself. Since then a wealth of regulation has, and continues to be put in place with the aim of ensuring that a similar economic crisis does not happen again. Indeed I think any recruiter in the consulting space would be hard pushed to argue that regulation is not the biggest single driver in hiring within the financial services today.
Too far too fast?
I am sure that the general public would have little sympathy with banks and other financial service organisations complaining that they are being unduly punished by regulation and I do not wish to enter into the debate over how far banks should continue to be penalised for their role in precipitating the crisis. However it does strike me that the regulation that has been passed (and I am referring principally here to Dodd-Frank) may be a case of a government aiming to go too far and too fast whilst seeking to ensure the general public that everything was being done to prevent another crisis.
Whilst I am in constant contact with SMEs in particular areas surrounding risk and regulation, I can’t help but feel that there are probably few people on the planet who understand every implication of Dodd-Frank and far less who could reliably claim to know how to implement all the various changes.
A simple way of observing the complexity of the Act is merely to compare its length with its predecessors. As was recently pointed out in The Economist the Glass-Steagall Act, which was enacted after the Wall Street Crash of 1929 (the event most commonly compared with the crisis of 2008) amounted to 37 pages, Dodd-Frank contains 848. The Economist’s comparison of the act with the mythical multi-headed hydra which grew two more heads for every one that is cut off seems a good one. Every consultant I speak to identifies new areas which throw up complications and new deadlines which are frequently missed or postponed by regulatory bodies.
A gradual approach
The point of this is not to suggest that regulation in and of itself is a bad thing: we have seen the catastrophic results of deregulation at all costs. However it strikes me that at a time when banks are under enormous pressure from the media, governments and the general public to increase lending to businesses in order to help growth recover at a time when the public purse is undergoing an unprecedented squeeze, their focus is instead on ensuring compliance with acts which perhaps they, nor the general public fully understand the implications of in terms of their implementation. Not only is this costly for the banks themselves, it is costly for the wider economy. I am not suggesting that we roll back the regulation in its entirety and resume the good old days of the culture of high risk trading that got us into this mess, but perhaps it is time that regulation was drip fed slowly and more methodically.
Focus on growth
This approach might seem strangely self-defeating from my own perspective. It stands to reason that if I acknowledge that regulation is the primary market driver, to water it down would be to damage my own economic prospects in terms of hiring. However I feel that with the lifting of some economic burdens (namely the cost of implementing the complex regulations), banks and their consultants could focus on identifying key areas for economic growth and on implementing these strategic change and transformation programmes, i.e. the replacement of out of date systems and platforms to ones which would help to reduce costs and allow money to be redistributed elsewhere. This is only the opinion of one individual and I would be interested to hear your thoughts, please contact me by clicking here.