Few assumptions die harder than the idea that deregulation is necessary to boost economic growth. On the contrary, TUAC argues that insufficient regulation in the financial sector could trigger another financial crisis and a global economic recession, as happened in 2007-08.
That argument opened the latest TUAC webinar, “From deregulation to destabilisation: the risks of rolling back financial market safeguards”, on 4 November. Ann Pettifor (Director, PRIME), Daniel K. Tarullo (Harvard Law School and former Fed Governor) and Vítor Constâncio (University of Navarra and former Vice President, European Central Bank) made up the panel, with Michael Budolfsen, President of UNI Europa Finance, moderating.
Pettifor focused on how the deregulatory revolution that started in the 1970s in the UK and US affected the real economy, which vulnerabilities are currently building up in financial markets, and what can be done to restore public control over the financial sector. Tarullo, who helped shape the regulatory response to the crisis as a member of the US Federal Reserve Board from 2009 to 2017, addressed the political challenges in regulating the US financial sector and their implications for financial stability. Turning to the EU, Constâncio recapped recent moves to simplify banking and financial rules, while stressing that the limits of the European economic model lie less in its lack of financial integration than in the weakness of its domestic demand and in its unbalanced, export-led growth model.
Financial stability is not only a cornerstone of economic growth, but also an essential pillar of democratic systems, TUAC insists.
Unwinding the banking sector safeguards introduced after 2008 in the name of growth and competitiveness risks taking the economy back towards the very conditions that led to the last crisis.
Trade unions recognise that those rules have made the financial system more resilient, but stress that the job was never completed. In particular, non-bank financial institutions – spanning investment funds, hedge funds, insurers and private credit providers – have grown to more than USD 250 trillion, according to the Financial Stability Board, while enjoying less prudential scrutiny than banks. TUAC highlights how quickly their links with the traditional banking system shift, and how hard they often are to detect – posing significant risks to overall stability.
When financial bubbles burst, it is not the billionaires who pay the highest price. It is the millions of ordinary workers who lose their jobs and livelihoods.
TUAC will draw on the webinar to inform its advocacy work at the OECD and call for stronger financial regulation, as well as for a global financial system that serves the real economy, its industries and workers, rather than one that makes money from money through speculation.
