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Only global banking regulations make sense now 2010-May-26 at 17:47 PDT

Posted by Scott Arbeit in Blog.
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Regulators Seek Global Capital Rule, by Binyamin Appelbaum, 25-May-2010

Now one of the most consequential decisions about new restraints on the banking industry — how much more capital banks should hold in their rainy day reserves — is being decided not on Capitol Hill but far from Washington, by a committee based in Basel, Switzerland.

The Obama administration is pursuing an international agreement to make banks hold significantly larger reserves, which it regards as essential to increase the stability of the global financial system. It wants to complete the negotiations, which are being coordinated by the Basel Committee on Banking Supervision, by the end of the year.

Having tighter capital requirements only in the United States would drive investment to other places in the world through arbitrage.  The Obama Administration rightly now looks for a global consensus on a new, higher level of capital reserves for banks to prevent another global economic crisis like the one that we just experienced.

As you might imagine, the banks have reacted with shock and horror at the thought that they might need to be better capitalized:

Banks also warned that governments were piling on proposals to tax and constrain the beleaguered industry.

“The cumulative financial impact represents a level of conservatism so extreme that it will harm the banking sector, banking customers and national economies,” Wells Fargo’s chief financial officer, Howard I. Atkins, wrote in a letter to the committee.

If the “harm” is more security vs. slightly more profits for banks… I’ll take the security right now, thanks very much.

This process is inevitable after what we went through, and although I would have wished for it to be done already, it’s good that it’s moving through the system even within a few years of such systemic shock.

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Comments»

1. QED Real Estate Consulting - 2010-May-26 at 17:57 PDT

This crises cannot be unwound without a more global solution, or a solution that regulates and restricts investments in unregulated markets.

2. Frank Schoenburg - 2010-May-26 at 18:04 PDT

Requiring more capital in all banks is a necessary step to stabilize global finance. Good article

3. Bryan Kopp - 2010-May-26 at 20:16 PDT

I’ll just flat out call myself an ass for continuing to harp on this, but I still maintain that “what we went through” is far from over; and not just in terms of a situation that has yet to see its resolution. Rather, a situation that has only begun to express itself, and as such, needs to see a far deeper series of breakdowns before governments, financial institutions, etc. can begin to create new systems geared to stabilize and support the healthy growth and exchange we all want so dearly.

4. Scott Arbeit - 2010-May-26 at 22:59 PDT

Bryan –

You’re not an ass. Just stubborn, which is only one property, amongst many, of an ass. So you’re definitely not more than, say, a small part of an ass. :-) So, anyway…

I can see the possibilities that you see. I can imagine that we’re simply at the precipice of much larger systemic shocks, and that we’ll someday look back at this period as the time when we thought we had dodged a bullet, but didn’t even come close.

But I can also imagine a future that includes enough — just enough — leaders who understand how precarious the situation is right now, and who will act effectively to achieve better outcomes than complete disaster. I believe we’re seeing some of them now. It won’t be perfect, there will be very difficult things to deal with, and the road will not be smooth; but, in the world I imagine, we’ll be able to act before things go that horribly wrong.

My only evidence is the growth of the Integral movement that you and I both see, and a belief that it shows not the constant angle of a slowly rising line, but rather the beginnings of a monumental curve upwards. Maybe even exponential….

I’m sticking with my version of the story.

Scott


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