Basel III derided further

Ft full-pager says Basel III et al will have the cumulative impact of driving investment money from banks to non-banks.  The killer quote from an expert on financial regs:  "It's now one-third more expensive to do business with banks, a powerful incentive to use non-banks" like hedge funds and other entities.

So the question becomes, how much of the money will escape "sectoral regulation."

A found description of non-bank lending:

Non-Bank Lending

Non-banks are ordinary intermediaries.  They act as a conduit between those with funds to lend and those in need of funds.  By pooling the funds of investors from whom they borrow, they can then lend in various amounts and periods.  For their service they charge a fee, usually in the form of periodic interest payments.  Their borrowing and lending increases the total credit market debt but has no direct effect on the money supply.  Non-banks simply intermediate the transfer of funds from the bank accounts of the original investors to the bank accounts of the ultimate borrowers.  

Non-banks usually borrow short-term at lower rates to lend longer term at higher rates.  That means a non-bank must be able to roll over its short-term debt at favorable rates.  It must also be able to borrow on short notice to manage any cash flow problem.  For that reason it must maintain an excellent credit rating, or it may not be able to borrow at all.  

A general rule:  for every crisis there is a new rule set, the response to which (either going overboard or escaping its grasp) usually sets the table for the next crisis.  Such is life.

Martin Wolf is among those unimpressed by Basel III, describing it as "the mouse that did not roar" (a great Peter Sellers' film):

To celebrate the second anniversary of the fall of Lehman, the mountain of Basel has laboured mightily and brought forth a mouse. Needless to say, the banking industry will insist the mouse is a tiger about to gobble up the world economy. Such special pleading – of which this pampered industry is a master – should be ignored: withdrawing incentives for reckless behaviour is not a cost to society; it is costly to the beneficiaries. The latter must not be confused with the former. The world needs a smaller and safer banking industry. The defect of the new rules is that they will fail to deliver this.

His basic complaint is that the amount of equity required is "far below" the levels markets would naturally demand if there was no chance of government bailout--so bad pricing of risk.  He then makes a case for much higher levels that he says wouldn't crimp the industry as much as feared.