From the FT:
“Give me chastity and continence, but not yet.” Bank regulators seem to understand the sentiment of the youthful St Augustine. The post-crisis Basel III capital standards delay banks’ day of mortification.
For banks, this is good news.
For the rest of us it’s very bad news.
For the prospect of reform of the world’s economies it’s dire: the clearest indication that our politicians haven’t got the bottle to deliver what is needed.
This has the prospect of ending in tears.
Or worse.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Given that we are around the bottom of the cycle at the minute, rapidly introducing an increase in counter-cyclical capital requirements now would create destabilising effects for little gain. It would be silliness for the sake of it.
There are two main contradictory calls at the minute. On one hand, there are calls to “get banks lending again.” On the other, there are calls for banks to hold more capital in proportion to their lending. In the real world, you can’t have both.
The problem is that if Basel III is going to be the primary defence against another bubble, if it’s not coming in until 2019, that’s more than enough time for a huge bubble to inflate – and burst – before the new requirements even come in. As Paul Mason shows in his book “Meltdown”, the entire shadow banking system grew from almost nothing to trillions of dollars in about 6 years between 2001 and 2007.
I have some sympathy with what Paul says here – politicians are saying two things that seem to be contradictory on the face of it. But wasn’t Quantitative Easing meant to fix this – by expanding the monetary base and giving banks more funds to lend out? So far, it seems to have mainly impacted on asset prices rather than real economic activity, sadly.