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Capitol Hill - Source: ONE News
"One thing that's unsatisfying about finance is, finance is
about balance," says Eugene Ludwig, former head of US-bank
regulation under President Bill Clinton.
"In finance, the porridge can't be too hot or too cold, it has to
be just right."
With the world having just come through the worst financial crisis since the Great Depression, a bit of balance is probably just what the doctor ordered.
The question is - is the US economy, the origin of the latest crisis and still by far the world's biggest economy, any closer to fixing the imbalances that got us here in the first place?
Ludwig, who served as Comptroller of the Currency from 1992 to 1998, warns it will be a slow process as Americans start saving again and the US government works to enact better bank regulations.
There's also a real danger that the US won't do enough to reform its bank regulation, leaving itself open to another financial crisis.
"If we don't have a coherent regulatory mechanism we will be back at the same stand," Ludwig told AAP in Sydney, where he opened a new office for his consulting firm, Promontory Financial Group.
"I am hopeful.
"I have never seen our congress more thoughtfully focused, than
it is this time."
US bank regulation is the overlapping responsibility of a number of
federal and state bodies.
The US Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corp and National Credit Union Administration are federal bodies that have sometimes competing mandates to oversee financial institutions.
At the same time, the states regulate many of the over 8,000 US banks.
In contrast, Australia has one Federal body, the Australian Prudential Regulation Authority (APRA), which regulates all banks and deposit taking institutions such as credit unions.
The US system means smaller banks can try and pick a regulatory regime that might be easier to negotiate.
US President Barack Obama's administration is currently trying to pass reforms to strengthen the system.
"Some consolidation of the regulatory mechanism is probably an even chance," Ludwig said.
"An entirely consolidated regulatory mechanism, lamentably, is less likely."
Ludwig also said it was likely that the US Congress would form a consumer regulator, similar to the Australian Competition and Consumer Commission, and a body to identify systemic risks in the US banking system.
Australia has weathered the financial crisis better than most countries, at least in part because of APRA's role in regulating the banks and other financial institutions, Ludwig said.
The US was also making headway in reducing the excessive amount of debt people and companies had racked up. The personal savings rate in the US was now running at about five per cent, Ludwig said.
"That hurts the economy in the short run, but helps in the long run," he said.
However, that didn't mean the problems were over.
"The US as an economy has to digest several areas of credit excess, not just in the retail credit space which is say 50 per cent digested, but in the commercial space as well," he said.
"What one is going to see in the US in the months going forward is a lumpy recovery."
The hope is that the US economy will regain some sort of balance through the recovery.
