WASHINGTON Financial regulation reform worldwide is splintering in some critical areas as the acute pain of the 2007-2009 banking crisis eases, putting efforts toward a global crackdown in jeopardy.
Despite pledges for change from leaders of the Group of 20 leading nations, only limited progress is being made by the United States, the European Union and Asian governments to rein in bank risk and stabilize the financial system.
Momentum for reform could be lost without a concerted push to align initiatives more closely, analysts said.
The situation will be a major topic of discussion at the 2011 Reuters Future Face of Finance Summit to be held February 28 through March 2 in Washington, London, New York and Hong Kong.
Dozens of top government regulators, lawmakers and senior industry executives will discuss the outlook for the world's banks, markets and financial institutions at the event.
"Money is like water, it will flow around any barrier. That is why international coordination of financial rules is critically important," said Edward Mills, financial services policy analyst at investment firm FBR Capital Markets.
"The financial reforms passed last year in the United States will only truly work if there is global coordination," said Mills. "We have seen commitments for financial reform among members of the G20, especially in the areas of greater registration and transparency among hedge funds, increased (bank) capital standards and derivatives reform, but much of it has been plagued with delays and a lack of conviction."
The reform push has long presented problems for Wall Street giants such as JPMorgan Chase (JPM.N), Bank of America (BAC.N) and Goldman Sachs (GS.N), while more recently a wave of consolidation among financial exchange groups including NYSE Euronext NYX.N has complicated the picture.
One problem area is restraining banker pay, where financial industry lobbyists have fought hard to prevent real changes in the compensation rules.
U.S. regulators are trying to institute long-term reforms at banks, including a proposal requiring executives at the largest financial institutions to have half of their bonuses deferred for at least three years. But U.S. reforms have paled in comparison to crackdowns abroad.
Britain has finalized a deal with banks known as "Project Merlin" to curb bonuses and boost lending to business, though some critics have charged it will be hard to enforce.
Hong Kong now requires that up to 60 percent of bonus payments be deferred for at least three years, with banks able to claw the money back in cases of substandard performance.
Singapore has introduced similar rules for some senior employees at domestic banks, while China has new guidelines limiting fixed pay to 35 percent of a total compensation package, with the rest bonus and welfare benefits.
In the area of requiring banks to hold more capital and imposing more oversight on the derivatives market, the fight between regulators and industry over details has turned into "trench warfare," said economist Dean Baker, co-director of the Center for Economic and Policy Research, a think tank.
"There are important issues about timing of implementation, and what will count as capital, that are yet to resolved. With derivatives, there are efforts to carve out exemptions at every opportunity," Baker noted. "I would say that no one has gotten far on the 'too big to fail' issue."