Streetwise Professor Says EU Capital Structures on Commodity Trading Firms Is ''All Pain, No Gain''

In a blog post titled "Capital My Boy, Capital: Or, the Day of the MiFIDs," University of Houston finance professor Craig Pirrong discussed regulation of the capital structures of firms across the European Union. He suggested that the European Securities and Markets Authority's ("ESMA") regulation, which would likely subject the same type of capital requirements to firms that engage in financial intermediation as firms that serve as intermediaries in physical commodities, "is like the proverbial poor carpenter who owns only a hammer, so that everything looks like a nail."

Professor Pirrong argued that while commodity trading firms intermediate, they are "totally different" than banks. He cautioned that application of bank-like capital requirements on commodity traders would likely cause the efficiency of commodity intermediation to decline, and burdensome costs of regulation of their capital structures would harm both producers and consumers.