Tangle of Basel III ties knot in safety
Multitude of rules designed to make global banking safer are undermining each other, leaving the system open to new risks
The first Basel agreement on global banking regulation, adopted in 1988, was 30 pages long and relied on simple arithmetic. The latest update, known as Basel III, runs to 509 pages and includes 78 calculus equations.
The complexity is emblematic of what happened over the past four years as governments that injected US$600 billion to rescue failing banks during the worst financial crisis since the Depression devised ways to make the global banking system safer.
Those efforts have been stymied by conflicting laws, divergent accounting standards and clashing rules adopted by countries to protect their interests, all of which have created new risks.
"They're like a bunch of bumper cars," Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics, said of the new banking regulations.
"On their own, each might do some good things, but they bump into each other over and over. That could render them useless, or worse, perhaps harmful."
While higher capital requirements, curbs on banks' trading with their own money and other rules have reduced risk, they have magnified the complexity of supervision, according to two dozen regulators, bankers and analysts Bloomberg interviewed.
