For decades now, United States have been considered to wear the crown of capitalism, where business can thrive, banks can pursue new avenues and traders can make millions. But it is increasingly becoming clear that the nation has changed in post-financial crisis (2008/09) world.
Regulators have fined banks and companies, especially in the finance space billions of Dollars, traders got convicted. Banks are being punished by new set of rules for doing their old school business such as working as market maker, storing inventories of bonds. Regulators even went as far as using Dollar as their weapon, threatening sanctions of barred to use Dollar, if overseas banks try in their own way to escape conviction. Most had plead guilty and came to settlements with regulatory regime.
However, individuals are giving a fight though.
While stringent conviction is welcome to prevent securities fraud such as Libor, Euribor rigging but regulators going too far might be damaging (if not, then changing), very fabric of how financial markets have worked in the past.
To give two examples:
Think of a case, when you went to banks for loan against mortgage and they say they will charge you more if the loan is secured (say by your mortgage). That is exactly what is happening in the repo market, secure loans are now more costly than unsecured ones. Now, Repo market work as an important source of funding, not only in daily lives but more so during period of stress. But for good or bad, market has changed its structure.
Investors, traders have been complaining about drain in liquidity resulting from banks' disappearance from their traditional role of market making due to newly imposed regulatory cost.
Think of another case, you went to grocery and the grocer tell you how much profit he makes selling you the products, to be more specific various variety same products or a used car salesman how much he is making, selling you the car. In real life, these things are unimaginable but if it becomes law, there would be lesser incentive to be a grocer or used car salesman, which will do nothing but decrease competition and in fact increase the price.
Jesse Litvak, former bond trader for Jefferies are fighting allegations of bond selling sighting these examples. He was convicted in 2014, but this month that ruling was overturn and he would have another chance to argue his case.
While it is of extreme importance that securities fraud be minimized but that shouldn't damage how things work.