Well done to Matt Levine for finding — and explaining very clearly — the BIS’s special feature, by Ben Cohen, on the way in which the world’s banks have adjusted to higher capital requirements. Basically, the BIS, which sets the Basel capital requirements for the world’s banks, wanted to know how banks reacted when those capital requirements were raised.
Monday’s Counterparties email went out under the headline “QEBasel“, which may or may not have been an effective way to communicate that the latest relaxation of Basel rules was emphatically done with monetary policy in mind, rather than regulatory prudence. Under the new rules, it might take banks longer to get to a truly safe place, but at least those banks will (we fervently hope) lend more in the meantime, giving a much-needed boost to global growth.
Is simplicity the new new thing? The front page of the new issue of Global Risk Regulator — the trade mag for central bankers around the world — features an excellent article by David Keefe about Sheila Bair, Andrew Haldane, and calls for a “return to simplicity”. Bair tells Keefe that “we’re drowning in complexity”:
The Clearing House has a new study complaining about the idea that the world’s biggest banks — the Too Big To Fail institutions — should have higher levels of capital than other banks. (The study is meant to be here, but the website isn’t working very well, so I’ve mirrored it here.pdf.) The main conclusion is that “if the Basel Committee’s G-SIB capital surcharge is implemented in the U.S., these banks would have to either increase the borrowing costs to their customers by 60 basis points” — an outcome so self-evidently horrific that the study doesn’t even bother to explain how harmful it would be.
Basel has spoken, and the Sifi surcharge — the amount of extra capital that will have to be held by systemically important financial institutions — will range from 1% to 3.5%, with no bank in the first instance being subject to a surcharge of more than 2.5%.
In the Republican presidential debate last night, there was unanimity on most issues, including the new orthodoxy on the right that bank regulation — like any other regulation, for that matter — is a Bad Thing, and a sign of the government overreaching. It’s important to remember that this is not the way that right-wing parties behave elsewhere in the world. Consider for instance the UK, which seems to be cracking down on banks in a manner which would make even Barney Frank blush:
It’s not an easy time to be a central banker. In both the eurozone and the US, unemployment is proving stubbornly immune to monetary policy. And on the regulatory side of things, the global nature of the banking system means that you need to get all major countries on the same page. Which is proving all but impossible, as the latest little spat between EU and US regulators proves.