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Next Wednesday, Jan. 13, won't be just another hump day. It's a key date for regulators in both the United States and Europe who are preparing to launch the largest overhaul of global financial regulation since The Great Depression.
On that day, at least two seminal events are scheduled to take place:
- The U.S. Congress' Financial Crisis Inquiry Commission (FCIC) – the ten-member commission appointed with goal of investigating the causes of the financial crisis – will begin its first public hearing.
- And the European Parliament will hold a confirmation hearing for Michel Barnier – the French politician who has been appointed to oversee the regulation of the European Union's (EU) financial services sector.
Both of these events will have significant implications on the global financial reform that is set to go into effect this year.
The FCIC will hold hearings throughout the year with the heads of large financial institutions, beginning next week with two days of testimony from the heads of JPMorgan Chase & Co. (NYSE: JPM), Morgan Stanley (NYSE: MS) and Goldman Sachs Group Inc. (NYSE: GS). The commission may also summon Bank of America Corp.'s (NYSE: BAC) newly appointed chief Brian Moynihan.
The commission's final report – which is due on Dec. 15 – will be largely retrospective, but it, and the testimony on which it is based, will no doubt influence the austerity of Congressional reform. The U.S. House of Representatives last month passed a reform bill, and the U.S. Senate hopes to pass a plan of its own in the next few months. The two bills will then have to be reconciled during the run up to November's midterm elections.
"The reform package will be more far-reaching than anything we've seen since the Great Depression, and there is a high likelihood it will pass," the Eurasia Group, a research and consulting firm that closely follows Washington politics, said in a research note. "Upcoming midterm elections will encourage populist approaches."
On the other side of the Atlantic, the nomination of Michel Barnier – who was formerly commissioner of the EU, as well as France's agriculture minister – will play a key role in shaping of new EU regulations and selecting other European supervisors to oversee financial markets.
There have already been accusations that French President Nicolas Sarkozy will use Michel Barnier to advance French interests.Sarkozy ruffled feathers when he flippantly suggested that Britain was the "big loser" with respect to Barnier's appointment.
"What President Sarkozy's statement tells us is that he does not see the European Commission as a commission for the advancement of European interests," said Charlie McCreevy, a former Irish finance minister who is now the European Commissioner for financial services. "He sees it as a commission for the advancement of French interests."
The City of London, as Europe's largest financial services industry, will certainly be watching for clues about how heavy-handed its new financial overlord might be.
"One of the biggest things at the European level is what they are calling the markets infrastructure directive." Simon Gleeson, a partner at the law firm Clifford Chance, told Reuters. "It started life about regulating derivatives but is becoming a complete redesign of financial trading in Europe."
Barnier is expected to unveil this draft law, which will include mandatory clearing of as many off-exchange derivatives contracts as possible, by July, according to Reuters.
The resurrection of a so-called Tobin Tax on financial transactions has also been discussed, with France and Germanyfirmly in favor and Britain following loosely behind. However, the United States is firmly against such a tax, which makes its implementation in Europe unlikely.
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