The Leaderless Revolution: The ongoing debate about bank regulation

One of the arguments of my forthcoming book is that one sign of the failure of government to agree necessary legislation is the seemingly arcane but vital issue of capital requirements for banks.  I discuss this issue in this recent column for The Guardian.  Such requirements arguably would have prevented the recent financial crisis.  Even though the crunch was now two or so years ago, governments worldwide have yet to impose new requirements in most cases, and the so-called Basel III requirements, which are emerging as the new global standard, are judged by many impartial experts as already inadequate.

Though sometimes technical, there has been a raging debate about this issue in financial and academic circles.  A recent round has taken place in the FT.  This letter from the admirable Professor Anat Admati and others takes the Randian Alan Greenspan to task (and indeed the banks’ lobbyists) for their erroneous – and in the banks’ case, self-interested – claim that the capital requirements will impede growth.  There is no evidence for this (the Bank of International Settlements came to the same conclusion).  The main effect of such requirements will be limit the risk of bank failure – and limit bank profits.  Admati has already assessed the Basel III requirements as inadequate.

 

My prediction is that the banks will win this argument, and that Basel III will be the maximum limit at best, and may well be watered down, in dozens of different obscure ways, in national legislation. 

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