The World’s New Banking Rules Are Here: Basel III Is Soft and Sweet

trichet 0 The Worlds New Banking Rules Are Here: Basel III Is Soft and SweetLast last year, The Basel Committee on Banking Supervision, a boring-sounding but enormously influential group of regulators from 27 nations, published what might have been the single most important document in finance.

Nicknamed Basel III, it proposed a much more rigorous set of guidelines for leverage at global banks. “Provided it is not watered down, Basel III will force banks to hold much larger—and more loss-absorbing—capital cushions,” the Financial Times wrote yesterday. In other words, banks weren’t going to be able to gamble so enormously. “The resulting reduction in leverage,” said the piece, “will shift risk away from taxpayers and back on to private balance sheets.”

But a lot changes in 24 hours.

Today, a body called the Group of Governors and Heads of Supervision, which oversees the committee, met to “review the Basel Committee’s capital and liquidity reform package,” according to a press release. What they decided on, which chairman Jean-Claude Trichet calls “a landmark achievement,” is exactly the kind of leniency that banks have been hoping and lobbying for. Dow Jones calls it a softening of Basel’s stance “on some issues, reacting to concerns from the banks.” Reuters says the group has scaled back efforts “to beef up” global banking rules.

In some cases, what’s been watered down are definitions. For example, banks will now be allowed to count government bonds as part of the liquid assets they’re supposed to have in case of a market collapse. In other cases, what’s been watered down are timelines: One enormous new leverage rule won’t take effect until 2018, if then.

Between this, the pleasant end to the S.E.C.’s Goldman suit, and a very un-terrifying final financial regulation deal, Wall Street has lately had lots of reasons to sigh in relief. “I think the attacks on Wall Street firms, I hope, are probably over,” Goldman’s former chief John Whitehead told The Observer this month. “Good news for all, for everybody, for the public.”

Comments

  1. The biggest stumbling block in adopting the Basel III agreement relates
    to greater demands on capital ratios. The banks claim that these
    conditions will adversely affect profit margins. Banks will have to hold
    much more capital to prevent a repeat of the financial crisis. Besides
    increasing their core capital ratios, they will be forced to carry a
    further capital conservation buffer.