OPINION: Regulatory Pendulum Fully Swung

Terry Flanagan

I recently spent at a local library sale on a worn paperback autobiography of former New York City Mayor Ed Koch. It’s quite a good read as a window into the city in the turbulent 1970s and 1980s.

One passage late in the book struck me as applicable to today’s financial regulatory climate. In what started out as a rant against political extremists, the late Koch segued into a broad observation. “Everything moves like a pendulum,” Koch wrote. “That is the way life is. You can’t get too excited. You can just try to lessen the swings.”

Earlier today, JPMorgan Chase reported fourth-quarter net income of $4.9 billion in a report that generally fell short of ‘Street’ expectations. The biggest U.S. bank’s legal expenses came in at $1.1 billion for the quarter and $2.9 billion for the full year, following $11.1 billion recorded in 2013. That $15.1 billion legal bill for the past two years exceeds the annual GDP of nations such as Iceland, Jamaica and Albania.

In typically frank style, JPM CEO Jamie Dimon said “banks are under assault…we have five or six regulators coming at us on every issue.”

Now I’m not here to say banks have been blameless and regulators didn’t need to tighten up post-financial criss. They did. But at the same time, the current state of affairs is not tenable. The banks themselves are constricted, but of greater concern, the companies and individuals and governments who directly or indirectly rely on the banks for funding are also constricted, which hamstrings the broader economy.

Plus, surely there is a diminishing marginal utility with regard to regulation. The first regulator who steps up oversight on an entity can accomplish a lot, a second one would help, and a third set of eyes may even add value. But it’s hard to believe that a fifth and sixth regulator is accomplishing much beyond gumming up the works.

So here’s to a pendulum that’s ready to swing back toward rationality.


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