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The U.S. investment banking market has been very difficult for foreign players to penetrate. It is mature, sophisticated and has some dominant large players. Barclays really did it only by buying the core business of Lehman Brothers, while Credit Suisse had to merge with First Boston. UBS did it for a while, but it was largely a Pyrrhic victory by the time of the credit crisis. Since then, UBS has retrenched to a position in wealth management. Perhaps the only firm that largely organically penetrated the U.S. market was Deutsche Bank (DB) - Get Deutsche Bank AG Report .

But Deutsche Bank now faces an enormous (and historic) $14 billion fine to settle multiple mortgage-securities investigations by U.S. regulators. Coming after a difficult couple of years for the bank, this fine could deplete so much of the bank's capital that it would fall dangerously close to regulatory minimums. That could begin to raise solvency concerns and scare counterparties, who would stop doing business with the bank. In turn, that could cause a real liquidity crisis and lead to the vicious circle of a bank collapse. It's as if U.S. regulators believe the correct punishment for the credit crisis is to create a new credit crisis.

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No one is saying Deutsche Bank is or was innocent, but fines meted out to the banks in Europe (including Deutsche Bank) are just a fraction of the total proposed by U.S. regulators. If Deutsche Bank does collapse and/or leaves the U.S. market, it will be fundamentally because of the egregious and unending state of U.S. financial service regulation (and U.S. regulation generally) -- as well as its levels of its punitive financial punishments.

There are countries in Europe that have deeper social welfare systems than the U.S., but Americans need to wake up to the reality that they have too many overly aggressive regulations. Research from George Mason University shows that the number of restrictive words in the Code of Federal Regulations (words such as ""shall," "must," or "required") has increased by an average of 12,000 per annum since 1997. Regulatory burden and social welfare, while related, are not the same thing.

If Deutsche Bank does collapse, we will have to seriously consider how responsible that fine was. It will have destroyed one of the world's major financial institutions, it will have cost perhaps hundreds of thousands of jobs (many of them held by people who had nothing to do with the bank's misdeeds), it will have some knock-on effects for the stability of the broader global financial system, and it will certainly have significant effects for the German and eurozone economies.

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Ultimately the issue is about what sort of political economy a country wants. The French decided a while ago that there were certain values they simply put before capitalism: social welfare, state schooling, wealth redistribution. That was their choice. It has consequences. They have had some very fine free schools and strong unions that protect workers' rights. They also have stagnant economic growth, 10% unemployed and permanent deficit challenges.

The U.S. is slowly making the choice that it too favors certain values before capitalism (which perhaps it always did)‎. This choice is based on the notion that humans are intrinsically untrustworthy and that a decent society can be achieved only if people are highly regulated and their freedoms are constrained. Such a choice sometimes can protect society from some malfeasance. But it too has consequences.

Historian Niall Ferguson calls it the shift from the "rule of law to the rule of lawyers." Meanwhile, 12% of the operating costs of the U.S. banking system are now estimated to be from compliance. All of this means GDP growth is inevitably constrained and the potential collapse of Deutsche Bank is another consequence.

The issue is also the type of regulation that the U.S. produces today. Once upon a time, the law was about creating general legal principles that judges would apply to specific cases when litigation arose. But the U.S. regulation of organizations such as the Financial Industry Regulatory Authority involves immensely detailed prescriptions about the minutiae of how a person should behave, what forms must be used or how transactions must be prosecuted. There is indeed evidence that this type of regulatory micromanagement actually increases legal breaches and legal instability due to the sheer complexity it creates. U.K. consultancy Oxera has written that "detailed rules -- instead of high level principles -- may give room for regulatory arbitrage or otherwise distort incentives of firms and thereby increase risk." 

Unfettered capitalism certainly has its ‎challenges; we have seen that time and again. We also have increasing wealth inequalities that need addressing. Regulation and values of equality in many forms are critical. But is a society engaged in slow death by a million rules really what the U.S. wants?

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Jeremy Josse is the author of Dinosaur Derivatives and Other Trades, an alternative take on financial philosophy and theory (published by Wiley & Co). He has spent more than 20 years in the financial services industry with a range of leading firms including KPMG, Schroders, Citigroup and Rothschild. Josse is also a visiting researcher in finance at Sy Syms business school in New York.