Financial Services

The Financial Services Industry (FSI) is designated as a “critical infrastructure” of the United States, directly affecting national interests and impacting national security. Now is the time to adjust course across the regulatory oversight system, react to a major change in the FSI international market with Brexit, and enhance our resiliency against future threats to FSI cybersecurity vulnerabilities. The U.S. FSI makes a strong, sustainable contribution to national security and economic prosperity. Nonetheless, the government can do more to mitigate the unintended consequences of Dodd-Frank, including the overly complex domestic regulatory structure; potential Brexit impacts; and emerging cybersecurity challenges. 

The first official National Security Strategy (NSS) was signed in 1987 and codified “a healthy and growing economy” as the second of five U.S. national interests. Economic opportunity and prosperity remain a priority in the 2015 NSS. A healthy economy provides the United States the strength and flexibility to use all instruments of national power, which increasingly includes financial sanctions. The financial services industry provides the structural support to grow and sustain a healthy economy and represents approximately 7% of the U.S. Gross Domestic Product (GDP). It is one of the sixteen designated critical infrastructures of the United States as established by a Presidential Policy Directive (PPD) in 2013, the figure below shows the complexity of the U.S. economy’s relationship to national security. 

The power of the financial services industry, banks in particular, has grown exponentially since the states formed the “more perfect union.” Thomas Jefferson wrote in 1816, “And I sincerely believe, with you, that banking establishments are more dangerous than standing armies…” The state of the U.S. economy is a bellwether to the population’s perception of banks and the industry as a whole. That perception guides the politics of the day and shapes regulatory proposals. While the PPD influences the industry’s security infrastructure in clear terms, control of the industry’s regulatory infrastructure is more complicated and under Congressional influence. 

As students of national security policy, the authors have spent the last six months analyzing the financial services industry: an industry that has undergone significant reform under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. This paper is a product of that analysis, and contains the following sections (essays): Section One, an assessment of the health of the financial services industry (FSI); Section Two, the industry’s domestic policy considerations; Section Three, international policy considerations; and Section Four, cybersecurity policy considerations. Specific conclusions are contained in each respective section. Section Five highlights our overall conclusions. These conclusions support our assertion that the U.S. financial services industry is achieving adequate profit at acceptable risk, but that more can be done to mitigate the unintended consequences of Dodd-Frank, potential Brexit impacts, and emerging cybersecurity threats. Recommendations contained within support the health of the financial services industry, economic growth, and national security. The methodology used was based on a formal industry Structure, Conduct, Performance analysis, as well as perspectives and experiences gained in travel to financial firms throughout the United States and Europe. 

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