Independent UK: The triumph of the lobbyists

[marmar]

International co-operation on banking reform is axiomatically desirable. We live in an era of massive global capital flows and sophisticated cross-border banking. A firm like HSBC takes deposits from ordinary savers in Hong Kong but is regulated in London. Goldman Sachs collects money from clients in Europe and invests it in China. In a world of globalised finance, it makes sense for national regulators to work together.

But an international approach is only really worthwhile if it is effective. And, sadly, the latest efforts of the Swiss-based Basel Committee on Banking Supervision, the closest institution we have to a global banking governor, simply do not come up to scratch.

The new capital adequacy rules unveiled by the committee yesterday, known as Basel III (after two other ill-fated incarnations), will require all banks to hold "common equity" of at least 7 per cent of their assets. This is considerably more than the 2 per cent core capital requirement under Basel II. But the new minimum is still less than the 11 per cent capital that Lehman Brothers was reporting right up until the Wall Street firm went bust two years ago. Some grossly undercapitalised European banks in Spain and Germany will have to raise more equity under Basel III. But they will have a generous six years to comply. And US and UK banks have already more or less reached the required capital ratios. Most banks will have surveyed what the Basel Committee produced yesterday and concluded that it was the green light for business as usual.

So how did it come to this? How, with the greatest banking meltdown since the Great Depression still fresh in the memory, did we get such weak reform? A big part of the answer is that the Basel forum itself is discredited. At Basel, central bankers and regulators effectively haggle with the representatives of the very industry they are supposed to be overseeing. And the banks lobbied very effectively indeed. Citing dubious statistics which purportedly showed that tough new capital rules would hold back the economic recovery, they succeeded in getting the requirements watered down to near uselessness.

The financial lobby also skilfully exploited the divisions between national governments over the level of capital needed by banks. Germany and some other EU governments are still in denial about how short of capital some of their own lenders are and fought efforts of the US and the UK to push for higher ratios. While national governments were divided, the banking lobby was impressively united. .............(more)

The complete piece is at: http://www.independent.co.uk/opinion/leading-articles/leading-article-the-triumph-of-the-lobbyists-2078494.html

[Mr. Sparkle]

1. It is very hard to believe that the US and the UK pushed for higher capital ratios.

They are usually the most corrupt in these type of negotiations. due to both governments close ties to business.

[Alcibiades]

2. They seek competitive advantage

Many German banks, especially the Landesbanks, have access to Partizipationskapital, which is translated as "silent capital," which comes from the state and may make up 40% of the capitalization of any given bank. These non-voting shares are part of the bank's capital, but it would seem that they are to be excluded should the bank suffer a loss. I can imagine why Anglo-American bankers would want to do away with such a device.

[Mr. Sparkle]

3. Interesting, i didnt kow that.

thanks!