“‘Financial institutions may be global in life, but they are national in death.’ The words of Thomas Huertas , a British banking watchdog, in 2009 sum up the most important piece of unfinished regulatory business left over from the financial crisis.”

“Unlike most other sectors, finance is a global industry regulated by national authorities. When the failure of a company with headquarters near Times Square, as Lehman Brothers Holding Inc. was, can hit traders in London, regional banks in Germany and churches in Australia, domestic regulators have their work cut out.”

“The problem has been that, since the crisis, national agencies have been even more preoccupied with their home turfs, trying to bolster domestic defenses against banking crises. The urge is understandable but it has created a cacophony of rules on issues ranging from capital levels and bankers’ bonuses to the legal structure of subsidiaries.”

“To critics—and there are many on Wall Street—the drive to erect national barriers threatens to Balkanize the banking sector and hit world economic growth by constraining the free flow of capital. ‘While we haven’t seen a new protectionism, we have seen fragmentation in rules and capital which is not useful for coordinated global growth,’ Kevin Warsh, who was on the board of the Federal Reserve from 2006 to 2011, told me.”

***

Read full Wall Street Journal article here.