It took two years to get there, but when international regulators late on Sunday announced the final details of their mammoth overhaul of bank capital and liquidity standards – the so-called Basel III package – there were hopes they were laying to rest the ghost of Lehman Brothers.
Just ahead of Wednesday’s second anniversary of the ignominious Lehman collapse, the Basel Committee on Banking Supervision unveiled a finely-tuned package of reforms – more than tripling capital requirements – to the accompaniment of much back-slapping.
“The combination of a much stronger definition of capital, higher minimum requirements and the introduction of new capital buffers will ensure that banks are better able to withstand periods of economic and financial stress, therefore supporting economic growth,” declared Nout Wellink, the veteran Dutch central bank chief who chairs the committee. The changes “will create a much more resilient banking system in the future”, echoed Lord Turner, head of the UK’s Financial Services Authority. The deal was the key to “a more stable banking system that is less prone to excessive risk-taking”, chorused US regulators.
There have been critics. Initial regulatory proposals have been watered down after industry consultation. Parallel reform proposals from politicians have also been weakened on their way into law. The powerhouses of Wall Street and the City of London lobbied hard to retain their historical sources of high-risk profit in the face of those determined to “de-risk” the system.
But there is real change all the same. The Basel III regime, to be phased in by 2019, comes on top of legal reforms in various parts of the world, notably the US, where the so-called Volcker package implemented via the Dodd-Frank legislation aims to curtail big banks’ risks. Most fundamentally, the practice of pure proprietary trading – whereby banks bet their own money dealing in anything from gold to Greek bonds – is being outlawed in the US within two years
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