Two years on, are we better prepared for the collapse of a multinational bank? With reams of new regulations committed to law, one would think so. However, David Childs, global managing partner of international law firm Clifford Chance, sees a very large chink in the shiny new armour.
You've lived through this crisis, working closely with some of the world's largest financial institutions and companies. Are we out of the woods?
We have come a long way but, despite all the reforms underway around the world, no-one has thought to reform and coordinate insolvency law at an international level. The regulation we've seen since 2008 has been designed primarily to prevent future crises, rather than deal with the aftermath. After Lehman Brothers collapsed, panic spread through the markets with devastating effect. An international insolvency law capable of dealing with a large global banking operation would remove a great deal of that uncertainty. We need a "Basel Committee" for bank restructuring law, and its consequences, if we are to truly see confidence restored to markets. If a global bank fails, global laws will be needed to deal with it.
So if you're a fan of the Basel approach, how do you rate Basel III?
It's an important step in resolving the issues that arose from the crisis. Yes, the banks will have to raise new capital, but the reform is -- at first sight -- a good thing. I say 'at first sight', because it still has to be ratified by the G20, so it's not possible to pass final judgment just yet. I feel the same about the other reforms currently being developed, from those for derivatives to accounting standards – there's still a long way to go before we can evaluate them properly.
But were all the reforms really necessary -- or were they just knee-jerk political reactions?
The crisis accelerated as it did for many reasons. Governments did nothing to stop the bubble inflating, because it was generating GDP. The regulators did nothing, and the rules weren't adequate. I think perhaps it was inevitable that the political system would sit down and draft a whole series of reforms. Now they have to make them work.
How will the regulatory changes in Europe and the US impact Asia?
Asia is a collection of diverse and competing countries that now need to absorb, interpret and adapt a huge number of reforms. At the same time, the world is looking to Asia to deliver growth – that's a difficult balance to strike. We've seen a great appetite from Asian clients from all sectors for our insights into the global reforms, but there is still so much that is uncertain. We're also seeing increasing levels of regulatory investigation and enforcement in Asia, both domestically and from international sources. That's not surprising given recent history, but it is another issue that Asian business will need to tackle.
There is a view that no matter what legislators devise, bankers and lawyers will figure out ways around them – indeed some bankers and lawyers view that as their mission. What do you think?
Writing law is one thing; applying it to generate the desired results is quite another. Governments and regulators still have much to do to implement their reforms, and businesses and their advisers have to come to grips with the impact quickly if they are to provide the post-crisis growth that countries desire. For multinational or cross-border businesses dealing with a host of regulators, that impact will be even more complex to discern.
