Hand-wringing over the US capital markets’ competitiveness is the latest fashion in Washington and on Wall Street, as shown by Thursday’s report from the committee on capital markets regulation, backed by Hank Paulson. Is it justified?
An apparent decline in the US share of new international listings is the most frequently touted evidence. That might owe something to the type of businesses being floated. Expecting as big a share of industrial initial public offerings as was cornered in the internet boom would be optimistic. More importantly, overseas markets – in Europe but also increasingly in Asia and beyond – are growing and maturing. That is good for the robustness of what is now a global financial system. Many US-based multinational institutions may not much mind where market activity takes place anyway.
US capital markets are mostly still bigger and more liquid than any others. That said, America does need to make sure it moves with the times. Mr Paulson, former head of Goldman Sachs, thinks fragmented regulation, litigation risk and onerous accounting requirements could be undermining the US market’s competitiveness.
He and others are right to think about revamping a septuagenarian regulatory system, perhaps eventually installing a single financial regulator, as in the UK. Recent co-operation among regulators and the plan to merge the oversight functions of the NASD and New York Stock Exchange are steps towards that. Regulation based on principles rather than rules would help watchdogs adapt more quickly as markets evolve. It might reduce litigation risk too – though reining in the more egregious lawsuits is also a good idea. Likewise, if some accounting obligations seem more trouble than they are worth, they should be re-examined.
That is all desirable to maintain the efficiency of US markets. But other markets are inevitably catching up as their economic clout grows. It would be a pity if a failure to acknowledge that reality led to the dilution of enviably high market standards.