Volker rule: So much for international co-ordination. President Obama's latest bank plan has not only surprised Wall Street. It has also shattered the post-crisis consensus -- endlessly repeated at the G20 meetings last year -- that financial reform should be designed and implemented on a global basis. Other countries will now be free to act on their own.
The US blueprint, which the president has dubbed the "Volcker rule" after the former Federal Reserve chairman, has put major structural reform of the financial industry back on the global agenda. Until this week, most governments had steered clear of explicitly trying to break up big banks. There was no international agreement for such a move. And any country that acted alone would risk hobbling its banking sector, while benefiting foreign rivals.
Obama's move shifts the balance. Some countries may see an opportunity. Countries like France and Germany, which have small banking sectors relative to the size of their economies and have not been forced to commit large sums to bailouts, might want their banks to profit from any retreat and disarray at U.S. rivals. Asian financial centres like Hong Kong, Shanghai and Singapore will no doubt also seek to benefit from Wall Street's woes.
However, others will seek to revive the debate about breaking up banks. In the UK, the governor of the Bank of England, Mervyn King, and the opposition Conservative party have advocated separating banks' retail and investment banking arms. The City of London has often benefited from heavy-handed regulation in the United States. But with an election due in June, the Labour government will be desperate to avoid being portrayed as the defender of big finance. Swiss politicians, too, may be emboldened to take a more radical approach to the country's two big banks.
There are plenty of good reasons to object to the Volcker rule. It is vague, and was clearly rushed out in a hurry. It will be hard to implement. And it does not tackle the root causes of the crisis. But the political appeal of picking a fight with the bankers could prove irresistible. Obama's move is an open invitation for others to follow his lead.