Many banking leaders have been whining incessantly about how proposed new capital and liquidity requirements will adversely impact GDP and reduce credit. This is an old canard raised by almost every industry when facing new regulation. The logic is about as convincing as arguing against restricting drunk driving because this will reduce gasoline consumption. Yet sometimes the argument, dressed up with conjuring tricks by sympathetic economists, fools the media and proposed regulations get watered down to meaningless levels.
It seems that regulators have become smarter though. The Basel Committee on Bank Supervision, which drives international standards, and the Financial Stability Board, which leads the response of the G20 to the global financial crisis, have issued a long term economic impact assessment, a macroeconomic transitional assessment, and a joint statement declaring that that “there are clear net long-term economic benefits from increasing the minimum capital and liquidity requirements from their current levels in order to raise the safety and soundness of the global banking system.”
These reports are going to take some time to analyze, but they seem intuitively correct notwithstanding the skeptical quotation marks in the headline to the Wall Street Journal’s cryptic report about this development. And this analysis follows a Bank of England study of the massive, global GDP-reducing public subsidies that are necessary to sustain very large undercapitalized banks.
Could there in fact be hope for meaningful international banking regulation after all?
