Can government effectively regulate global financial institutions?

As the robo-signing settlement is concluding, it raises the interesting question of "can government effectively regulate global financial institutions?"

Based on the settlement, it would appear the US government cannot.

• Can you imagine that the US government would have settled on the same terms and overturned 200+ years of property right law in the US if all of the financial institutions involved in submitting forged documents to US courts were foreign based?

• Can you imagine that beginning in 2009 the US government would not have pursued legal action for misrepresenting to investors the nature of the underlying collateral in private label mortgage backed securities if all the financial institutions were foreign based?

Since the beginning of the financial crisis, I have been looking globally for evidence that any government can effectively regulate global financial institutions.

I have not found any evidence indicating that government can effectively regulate global financial institutions.  If regular readers are aware of any evidence, please share it in the comment section of this post.

There is lots of evidence that government cannot regulate global financial institutions.

• In the US we have the Dodd-Frank Act which was written by and for the financial industry.  

• In the UK we have ring-fencing which does nothing to prevent banks from blowing themselves up as mortgages and sovereign debt can prove every bit as toxic as proprietary trading.

I do not think it is a co-incidence that there is no evidence that government can effectively regulate global financial institutions.  It has been recognized since the 1930s that governments cannot effectively regulate global financial institutions.  That is why the global financial system is based on transparency.

How many times have we heard that we should leave it to the market to exert discipline?  And what is the key to the market being able to exert discipline?  Transparency.