Beware pitfalls of rule-makers pursuing their agendas Over the past year, the phrase "American money market fund" has made European bankers squirm. For as the eurozone crisis has deepened, US funds have fled European bank bond markets, exacerbating their funding woes. US money market funds are provoking another debate - for a subtly different reason. Last week the European Commission held an important conference on the future of shadow bank regulation, ahead of wider debate about non-banks that the G20 and Financial Stability Board will unleash later this year. Gillian Tett During that event, Paul Tucker, deputy governor of the Bank of England, suggested (among other things) that if the US government did not implement badly-needed reform to their US money market sector, the Europeans might act unilaterally instead. Most notably, he suggested that regulators should limit European banks" reliance on short-term "flighty" funding from US funds, unless the sector was reformed to make it less susceptible to quasi-bank runs. Now a cynic might see this as simply shutting the stable door after the horse has bolted; after all, a lot of "flight" US money market money has already disappeared. But what makes Tucker's statement fascinating is the bigger pattern it reveals about global corporate governance. Four years ago, in the aftermath of the financial crisis, regulators on both sides of the Atlantic responded by calling for globally co-ordinated regulatory reform. After all, the argument went, the 2008 financial shocks had demonstrated how closely integrated global markets had become - and how adept financiers were at exploiting them. Thus it seemed self evident that transatlantic co-operation was needed; when I participated in a Brussels conference on bank reform three years ago, for example, it was notable how many US officials were on the platform. But at last week's event, the US presence was minimal. And while there was plenty of lip service about co-operation, the debate was almost entirely Europe-focused, due to pragmatism, as much as anything else: after three years of talking, European officials are increasingly baffled by what the US political machine is doing, and disenchanted by the idea of waiting to see what happens next. While the sense of post-crisis panic produced enough common impetus to write joint rules for the banks (think Basel III), in other words, that has now dwindled just as regulators turn their attention - belatedly - to shadow banking. Take those money market funds. For two years now, European officials have expressed unease that the flawed structure of the US money market industry creates potential for quasi-runs. And many officials at the Securities and Exchange Commission (and other Washington agencies) agree. But while the SEC is mulling reform proposals, nothing has happened, partly because the SEC has an over-crowded agenda, faces a fierce backlash from the private sector and is in an election year. Little wonder, then, men such as Tucker are now calling a plan B. The pattern cuts both ways too: on matters ranging from repo markets to the Volcker rule to credit rating agencies, policy in Washington is being debated according to national, sovereign interests, not a G20 vision. Now, some regulators might argue that this does not matter. Not all aspects of finance really need globally consistent standards. And the good news is that these days regulators are talking to each other far more intensively than they did before 2007, via groups such as the FSB. Indeed, in some cases, preserving some cross-border regulatory divergence - or competition - can be beneficial; if the Europeans ever do act unilaterally to curtail flows from US money market funds, for example, this might yet prod the SEC to act. If nothing else, the trend risks creating a host of new loopholes that savvy financiers can exploit. And it might yet be a straw in the wind of bigger trends. Since the crisis, voices have warned that economic pressure could create more protectionism. Thus far - thankfully - this has not really happened: globalisation remains afoot in global product markets, and capital flows. Yet, is it possible that we are now moving into a phase where policy is increasingly dominated by sovereign interests? Where localisation, not globalisation, takes root? After all, as Ian Bremmer writes in a fascinating book, Every Nation for Itself, what is notable about this post-crisis world is that "for the first time in seven decades, we live in a world without global leadership . . . at the height of the financial crisis . . . political leaders gathered in Washington under the banner of the G20 . . . but the sense of collective crisis soon lifted, co-operation quickly vanished." That need not be disastrous; as Bremmer notes, new power balances may yet emerge. But, investors would do well to keep watching that money market fund debate - not simply for its own sake, but also as a telling clue about the degree to which regulators can (or cannot) create a more stable, co-ordinated financial world.