The global financial crisis left the world's traditional powerhouse economies nursing a major hangover and strengthened the resolve of regulators in the U.S. to limit the damage if that sort of situation ever eventuated again.
The result is a bill passing through the American Congress with the most sweeping reforms of Wall Street in decades. One unavoidable consequence of that is that banks in the U.S. are going to face higher funding costs as a result of the overhaul of financial regulation. That will be felt here too, given how much of New Zealand's private sector debt is funded offshore.
Changes are already afoot with the Reserve Bank of New Zealand's requirement for banks to fund less of their loans through short-term or 'hot money,' pushing them to a greater reliance on deposits in New Zealand. That's one of the reasons there is still so much choice on offer for kiwis looking for a place to park their funds.
The reforms in the U.S. are more far-reaching. Lenders in America will face fees of US$19 billion to cover the cost of reform, which includes setting up new regulatory and oversight agencies within the Federal Reserve and Treasury, a new super-regulator for financial markets, and a body to oversee the insurance industry.
The U.S. is determined to clip the wings of Wall Street firms that sailed too close to the wind in taking and creating risk, through pooling substandard loans into securitized assets, and creating off-market derivative products whose exposures couldn't be easily gauged from outside.
Credit rating agencies are also to be held more accountable under the changes, with investors given the right to sue for bad ratings and regulators able to shut down agencies that perform badly. Consistently awarding higher-than-warranted credit ratings will now have consequences. In fact, some U.S. lenders face credit rating downgrades once they're forced to comply with more onerous regulations.
The derivatives market, a vast, loosely controlled pool of risk-sharing products covering some trillions of U.S. dollars, is to be brought into the light of day. Banks will have to put much of this kind of business at arm's length from a parent lender.
While they'll still be allowed to conduct interest-rate, foreign exchange and some precious metal swaps, most agricultural and energy commodity swaps will be prohibited.
The Federal Reserve is also to create a consumer financial protection agency, with far-reaching powers to police mortgage lending and credit cards. And a super regulator, the Financial Stability Oversight Council, will oversee Wall Street's biggest firms, as well as a new federal Insurance office in the Treasury to oversee that industry.
In the end, these reforms will not stop the greedy being greedy or the gullible being gullible, but they will create new levels of safeguards.
The cost of that will be borne two ways. Firstly, through the additional costs all this oversight will impose on banks - a cost that all borrowers will bear.
But secondly, it will make the world a better place for savers. Borrowers may bear the cost of higher interest rates and tightened access to credit. But savers will be rewarded with higher returns and an even more competitive world banking sector seeking their funds.