Basel III Boondoggle

Previous, Critical Blog Posts

There is little doubt in my mind that the Basel Accords are significantly responsible for the Great Recession, the financial crisis of 2008, and the recent sovereign debt crisis of Western Economies.

Here is my previous blog post about this subject.

A New Paper By The American Enterprise Institute

Just (11/12/2013 what a millennial date, 111213) came across “Basel III: Some costs will outweigh the benefits” by Paul H. Kupiec. The title is misleading or does not capture very well the arguments presented by this author. The title of a paper matters a lot. The wording make it sound like peanuts.

The author’s bio according to AEI reads among other things “Chairman, Research Task Force, Basel Committee on Bank Supervision, 2010–13”. The guy is an insider!

Anyway, I did not have the time to read it all, but I think the gist of this paper is pointing in the right direction. So I will here only excerpt the introduction in the announcement e-mail by AEI (emphasis added):

“In the US, Basel III will increase the capital held by the largest banks. …. The new rules span more than 1,000 pages [like Obamacare :-)] and unnecessarily complicate banking regulation.

… explains that many of the Basel III rules are more than just complex; they are unproven and potentially costly. He writes, “Complex capital regulations may give the appearance of rigor, but in reality they will fall short if they cannot be enforced. Basel III is just too complex to be effectively enforced, no matter how talented the bank examination force. . . . Those writing the policy rules need to reallocate their time away from writing complicated regulations and toward analysis that identifies the potential economic implications of the strategies the largest banks are following”

Basel Accords Did Not Prevent The Financial Crisis Of 2008 Nor The Sovereign Debt Crisis

One is allowed to be very sceptical whether more complicated rules will make any difference. On the contrary, our politicians and regulators are still clueless about economics. Therefore, the next crisis is quasi inevitable.