Comments on: The search for Basel III loopholes begins A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: SPEPost_com Wed, 14 Apr 2010 09:03:01 +0000 Perhaps I’m mistaken, but a few years ago I thought I read that even Basal II rules weren’t adopted, which would have been significant today due to set capitalization ratio for derivatives (which would have been new at the time)… have things recently changed?

By: NickGogerty Tue, 13 Apr 2010 12:36:23 +0000 The search for Basel III loopholes started the moment someone conceived. Risk mased approaches with a “limit” such as VaR etc. Basel naturally draw all to approach that limit as though by staying visibillly within that limit is sensible and safe behaviour. Like mortgage holders, the pervasive belief becomes, “well if I can and it is within the proscribed limit” then it must be safe.

off balance sheet, derivatives etc. will always be dreamed up and the system will be gamed. The risk is when everyone believes in the system such as ratings and stops being scared. Basel type systems, Ratings systems and anything that goes from risk metric to blind belief system as they are wont to do are inherently risky.

I would rather pay the cost premium of uncertainty spread through out a banking system over time and counterparty, rather than have a concentrated risk system which over time becomes a rubber stamp and excuse for not doing due diligence.

Basel type systems create false beliefs that allow people to suspend critical thought over time. Again give me independant uncertainty in small doses rather than absolute certainty in a single belief system such as Basel II.

Economics is a shared belief system combined with collective behaviours and actions. Anything which perpetuates false or homogenous beliefs at the group level is dangerous.

All risk systems will be gamed over time by innovators. Eventually the system is Swiss cheese, but the belief in its facade continues and that when bad things happen to everyone.