**CREFC Warns on a Piecemeal Approach to Global Financial Regulation**
The Commercial Real Estate Finance Council (CREFC) has highlighted growing concerns over the fragmentation of global financial regulation, citing a new paper jointly published on July 9 by the Bank Policy Institute, the Global Financial Markets Association, and the Institute of International Finance. The report, titled *The Costs of Fragmentation and Possible Solutions*, warns that divergent regulatory frameworks are threatening financial stability, economic growth, and global competitiveness.
Fragmentation, according to the report, undermines the progress made since the 2008 financial crisis to enhance the resilience of the financial system. It increases the likelihood of regulatory arbitrage, creates an unlevel playing field among financial institutions, and shifts risk toward less regulated sectors. Moreover, it poses a risk to the effectiveness of global standard-setting bodies such as the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO).
The authors argue that misaligned regulations and supervisory practices can trap capital, liquidity, and risk within local markets. This results in inefficiencies, introduces unnecessary costs for end-users, and hampers financial partners’ capacity to support both domestic and international markets. Fragmentation also increases market fragility, making systems more brittle and less adaptable to shocks.
The CREFC cites data to underline the potential cost of this regulatory disarray. A 2018 OECD survey estimated that fragmented financial regulation could cost the global economy as much as $780 billion annually. More recently, the World Economic Forum projected that annual global economic losses due to fragmentation could range from $600 billion to $5.7 trillion — roughly 5% of current global GDP.
The report outlines four key recommendations aimed at reducing fragmentation:
1. The International Monetary Fund, FSB, and Basel Committee should identify national-level rules that compel financial institutions to create local subsidiaries or impose constraints on branch operations.
2. Jurisdictions should reassess the calibration of ring-fencing requirements.
3. Global regulators and the financial industry should collaborate to resolve inconsistencies that contribute to market fragmentation.
4. The FSB should re-evaluate the effectiveness of international supervisory colleges and case management groups.
Despite these calls for greater alignment, CREFC notes a shift in the U.S. policy stance. Senior policymakers, including Treasury Secretary Scott Bessent, Federal Reserve Chair Jerome Powell, and Vice Chair for Supervision Michelle Bowman, appear less inclined to coordinate with international standard-setting bodies compared to the previous administration. In April, Bessent told the American Bankers Association, “We should not outsource decision-making for the United States to international bodies. Instead, we should conduct our own analysis from the ground up to determine a regulatory framework that is in the interests of the United States.”
CREFC said it is actively monitoring regulatory developments related to bank capital requirements, specifically in regard to how these evolving frameworks could impact commercial real estate finance. The organization stated it would engage with rulemaking processes by providing comments on relevant proposals.
