Reporting and lobbying in Basel III

By Felix Salmon
July 15, 2010
The WSJ has its own Basel III update today, which recapitulates most of what we learned yesterday. But there's one new twist -- or new emphasis on an old twist, I'm not sure which. When it comes to proposed liquidity requirements, says the accompanying graphic, "the proposal could cause huge funding shortfalls for banks world-wide". And the article elaborates:

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The WSJ has its own Basel III update today, which recapitulates most of what we learned yesterday. But there’s one new twist — or new emphasis on an old twist, I’m not sure which. When it comes to proposed liquidity requirements, says the accompanying graphic, “the proposal could cause huge funding shortfalls for banks world-wide.” And the article elaborates:

Something called the “net stable funding ratio,” is another sticking point. That formula would require banks to hold more long-term funding in an effort to make them less susceptible to freezes in the funding markets. Some analysts say that the requirement alone could cost banks trillions of dollars in new funds, and officials could postpone or shelve the idea, people familiar with the matter said.

It would be really helpful to know who the anonymous “analysts” are here: are they part of the IIF-based lobbying to downsize Basel III as much as possible, or are they genuinely independent? And what exactly is meant by “new funds”? Remember that we’re not talking about capital requirements here: the liquidity requirements talk about what form capital should take, rather than how much of it there should be. If you manage your liabilities so that they’re long-term rather than short-term, does that constitute raising “trillions of dollars in new funds,” or is it just a liability-management exercise?

The next paragraph of the article suggests that it might be the latter, and that the anonymous analysts do indeed have a dog in the fight:

Delegates at this week’s meetings discussed current studies by Basel staff and others estimating the likely impact of the proposed rules. Those studies in general show that the version of the rules outlined in December could require banks world-wide to raise nearly $1 trillion in new capital, according to people briefed on the process. That’s considerably less than the multi-trillion-dollar estimates published by some industry groups.

The debate over Basel III is by its nature tough to report on, because financial journalists’ sources tend to be in the financial-services industry, and you really can’t take anything that anybody in that industry says at face value on this subject. Meanwhile, central bankers and other technocrats deeply involved in the negotiations tend not to want to say anything on the record, which means that these stories are full of anonymous sources saying things which may or may not be trustworthy, and which they certainly can’t be held accountable for.

Is it too much to ask that when anonymous sources are used, they can at least be characterized broadly by whether they’re public-sector technocrats or private-sector financial-services professionals with an entrenched interest in weakening the Basel III regulations as much as possible? The standard WSJ “people familiar with the matter” formulation simply isn’t good enough here, especially when it’s used ambiguously: are the “people familiar with the matter” saying just that the liquidity requirements could be shelved, or are they also the source for the multi-trillion-dollar scare estimates?

Basel III is not going to be decided by a legislature susceptible to traditional lobbying techniques. So banks seeking to influence the outcome are naturally going to try to set the tone of the debate by talking strategically to members of the press. Anybody reporting this story should assume that they’re being used, somehow. And be very careful in what they say and how they say it.

Comments
One comment so far

“….are they genuinely independent?”

Thank you. Lawling hard to the port side.

Posted by Uncle_Billy | Report as abusive
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