Basel III – averting another financial crisis or protecting vested interests?
On the second anniversary of the financial meltdown that precipitated the deepest recession since the Great Depression capitalist nations have agreed a set of rules – known as Basel III – to help ward off another such crisis.
Critics of Basel III argue that the reforms don’t go far enough and will not be fully implemented until 2019 before which there may well be another crisis, more likely if the economy goes into a double dip recession. The main reform is a three-fold increase in capital reserve requirements. However, a three-fold increase on average tier 1 capital ratios of a mere 2% currently to cover against bankruptcy doesn’t bode much confidence in financial institutions with casino-like business models.
Advocates of Basel III say proposed capital reserve requirements of up to 7% are more than sufficient. A too high a capital requirement they insist could derail the nascent economic recovery – stifling banks ability to finance economic growth.
Western policymakers admit that more is still required to make the capitalist financial system safe and resilient. To be presented at the next G20 in November these will reportedly include greater supervisory regulation and more stringent capital adequacy requirements for systematically critical banks that are considered ‘too big to fail’.
For many this tinkering with simple detail is a massive disappointment following the immense hyperbole about a different more compassionate and caring capitalism during the depth of the financial crisis. As life long assumptions about the self-correcting nature of the financial markets were shattered and so-called empirical analysis about the diversification of capital market risk was proved outright baseless western policymakers and politicians vowed to fundamentally and radically change how finance worked.
Given the near collapse of the western financial system and the complete and total socialisation of financial assets to resuscitate it, Basel III and the other ancillary proposals are pathetic – weak, inadequate and ineffectual.
Firstly, if capital reserve ratios were raised to even 50% it would mean only half of banking liabilities are somewhat guaranteed. Its farcical to suggest that banking will now some how be safe and resilient with capital adequacy requirements of a mere 7%. Secondly, with respect to greater supervision to avert another crisis it is pertinent to note that in the UK alone three regulatory authorities – the Financial Services Authority; the Bank of England; and HM Treasury – armed with a plethora of regulation could not stop the crisis in 2008. Finally, protecting banks ‘too big to fail’ betrays the capitalists’ predisposition to safeguard incumbent and vested interests even if competition is irrevocably undermined.
It is clear that the Basel III proposals will do little to avert another financial crisis as the regulations do not address systemic failures in the financial system. In spite of the colossal bail out for the financial sector for which the weak and vulnerable are now suffering due to spending cuts Basel III is only designed to safeguard the failing financial structures and extend capitalism’s ever diminishing ‘sell by date’.