Deus Ex Macchiato

The recent New York Times article on the Basel Committee might prompt one to think that a rapid end to this most international of collaborations is in prospect — or at least that a prominent country or two might leave the big Basel tent. I suggest the matter is more subtle.

First, in all but name, countries have already abandoned Basel. The US has been famously tardy in its implementation of Basel 2, and never got around to Basel 2.5 before Dodd Frank made it impossible — indeed, illegal — for it to be implemented. There is a permanent statutory limit on the FED’s ability to alter US bank capital regulations via the Collins amendment to Dodd Frank (although exactly what that means is hotly debated).

Meanwhile almost every jurisdiction you can think of (Switzerland, via the Swiss finish; the EU with Liikanen, the definition of capital, &c; the UK with Vickers; Japan, by implementing loan loss provision standards with all the rigour of a drunk man trying to write his name on a grain of rice) has modified or proposed modifying Basel standards to suit their convenience. (Some of those proposals go further than Basel, which of course is fine in terms of prudence, but it rather wrecks the Basel Accord = global standard argument.)

My point is not that this is good (or bad). It is simply that Basel may be suffering a slow death, an unannounced death by a thousand variances. No country is going to announce that it is resigning from the Basel Committee: no country will publicly dissent from a major Accord. But many will implement piecemeal, late, or `with local characteristics’. The SIG might write a nasty report, but that will, largely, be that. The playing field was never level, but now it is getting slowly lumpier.

The NYT article exorts the US to go it alone, abandoning Basel. My question is simply how would you know that this advice had not already been taken?

Posted in: Basel by David /