On the 20th of June, BEUC and the TACD (Transatlantic Consumer Dialogue) held a conference looking back at the financial crisis of 2008, how it started and whether or not we have learned the lesson.
The conference kicked off by a keynote speech of Rohit Chopra, Commissioner at the US Federal Trade Commission, which looked back at the positive and negative developments since the financial crisis. While the Dodd-Franck regulation brought about some positive changes, like the set up of the Consumer Financial Protection Bureau (CFPB), an agency specifically designed to protect consumers in financial services with a broad mandate and regulatory powers, the Trump administration has been hard at work to strip it of its powers.
The key issue which Rohit Chopra addressed was that of moral hazard. As regulators fail in their job, in passing laws that keep the individuals working in financial institutions accountable, it creates a perverse incentive to take disproportionate risks, leading to a crisis like that of 2008. Indeed, as has been repeated many times, no bankers went to prison after the 2008 crisis.
In Europe, Benoit Lallemand, secretary general of Finance Watch, painted a mixed picture. While there have been some regulatory measures put in place, they were far less ambitious than the CFPB in the US. However, these initiatives are not in a process to be dismantled and so at least, the current advancements are here to stay. After the crisis, the initiatives from the EU Commission focused on prudential regulation, rather than consumer protection.
As far as what is still missing, we still have a destructive tax competition and we have not successfully undone financialization (for instance, by separating the activities of retail banking and investment banking). The narrative in Europe changed from “it’s the fault of the banks” to the Eurozone crisis and “it’s the fault of irresponsible governments”. And so we have lost the momentum for regulating private actors. What is happening in the US does not help the EU because the argument goes that in order to stay competitive, we also need to deregulate.
Looking ahead, on what needs to be done, MEP Philippe Lamberts underlined the reform of the ESAs (European Supervisory Authorities) as one opportunity to strengthen consumer protection by better enforcement of existing rules. Collective redress is also an initiative that has been stuck forever, and could provide consumers with an easier way to enforce their rights. All in all, there is still a great amount of risk in the financial system so we are not prepared for the next financial crisis. There is also a lot of easy money, and in that situation, people will do stupid things. There are bubbles in the markets as well, and a high level of debt (like student debt in the US). The deleveraging has not happened, and we still have too big to fail institutions. But there is no political appetite for this.
Finally, Monique Goyens, BEUC Director, discussed the price of bad advice, which is the topic of a new BEUC campaign. Misselling of financial products was one of the causes of the financial crisis. The European Union needs to tackle sales incentives to ensure that there consumers are sold products that suit their needs.