NEW YORK (Reuters Blogs) -- Peter Eavis had a worrying story last week: The chairman of the New York Federal Reserve, William Dudley, has effectively, behind the scenes, managed to delay the implementation of an important new piece of bank regulation.
The first thing to remember here is that delaying regulations is an extremely profitable game for the financial industry. If a new regulation will cost a bank $100 million per year, and the bank gets that new regulation delayed by a year, then it's just made $100 million in excess profit. What's more, the further away you get from the crisis, the harder it becomes for new rules to grow teeth. So when the banking lobby doesn't like a certain piece of regulation, its tool of choice is to bog it down and delay it to the point at which no one but the banking lobby cares any more. And then allow it to be implemented with so many loopholes and carve-outs that it's effectively toothless.
In this game, the banks are on one side, and the regulators -- primarily the Federal Reserve -- are on the other. So it's particularly worrying when a regulator ends up causing a delay and thereby helping the banks. And yet that's exactly what seems to have happened:
Mr. Dudley's concerns played a decisive role in holding up the final version of the rule, two of the people said. Some regulators, including officials at the Federal Deposit Insurance Corporation, were counting on the leverage regulation being completed by the end of last year. Strong supporters of the rule wanted it issued by then to reduce the chances that pressure from bank lobbyists would dilute it. The rule is now expected to come out in April at the earliest.