The Economist (official group for The Economist newspaper)

The Economist (official group for The Economist newspaper)

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Diana O.

Diana

To protect banks and the taxpayer, we must insist on strong capital for all banks

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  • December 14, 2012
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  • Susanna B.

    Susanna

    Susanna B.

    #1 Treasury Network Builder | MD at #1 Global Treasury Peer Network | Int.'l Sales & Marketing Developer

    Dear Diana. There is a rsk the Basel framework creates unintended consequences that we can't predict today to its full extent.

    What we can see though is that Basel III through its basic construction incentivizes sovereign debt and risks building up a sovereign debt bubble of previously unheard of proportions. The initial intent of the Basel framework was to avoid banks defaulting, which of course is completely impossible, bad management can't be regulated away. Fed has actually admitted it was this flaw that prohibited the Fed to bail out Lehman and forced the Fed to turn to JP Morgan to bail our Bear Sterns and WaMu.

    There are flaws in the Basel III and one is, incentivizing public sector debt. Another is penalizing corporate debt. Basel III is effectively disintermediating the bank sector from acting as the distributor of risks and savings in the economy. The effects is i.a. that the corporate sector is now building up a separate peer to peer financial system. This is very well described in the Economist from 14 Dec. I fear that Basel III probably will end up creating another bubble economy just like its predecessors. Those who will see the bubbles coming will be the winners, and we should not expect the regulation to protect us from volatilitiy and bubbles.

    http://blog.magnus-lind.com/2012/12/what-do-about-this-mess.html

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