This has been coming for some time. For all its claims to be frictionless and global, finance is corralled by national rules: look at the dearth of cross-border takeovers. And is there anything new about national bailouts? Mervyn King, the governor of the Bank of England during the 2008 crisis, liked to point out that capitalist companies are global in life and national in death — always looking to their national governments to save them if things get difficult.
Meanwhile, Switzerland’s decision to force UBS to take over Credit Suisse is an admission that banking is a strategic industry. In any normal reckoning about free market competition and consumer protection, letting the country’s biggest bank buy its main competitor would make little sense. But if your main preoccupation is to keep Swiss finance Swiss, then handing over a third of the banking sector to one outfit works just fine.
For all the focus on too big to fail’ banks, the US has always had too many banks that are too small to function properly. These minnows made the Great Depression significantly worse. While Canada had four national banks, each with branches across the land, widely spread shareholders and diversified customers, the US had 25,000 mostly undercapitalised banks, regulated by 52 different regulatory regimes and dependent on the vagaries of local economies.
The US protectionist turn has given other countries the chance to follow — especially as the Swiss, one of the great internationalists, are also looking after their own. European capitals are full of fury about the protectionism in Biden’s Inflation Reduction Act — and full of ideas about how to build fortresses of their own. Politicians are calling for state aid rules, the cornerstone of the EU’s Single Market, to be revised to allow more subsidies.
ProfSteveKeen