New banking rules underwhelm--by default

FT full-page analysis on new banking rules out of Basel, to be known as Basel III (the third great rule-set to emerge over the years).

The main changes:

. . . tightens the definition of what banks can count as highest-quality "tier one capital"--the main assets they hold to protect against losses.  It also requires lenders to hold liquid assets sufficient to see them through a 30-day crisis and sets a global "leverage ratio" to limit overall bank borrowing.

Why many experts are underwhelmed:  on every point, the initial draft of new rules was more stringent, only to be watered down after heavy lobbying by big banks.

But the FT says, on the basis of a quiet survey of the regulators themselves, that the real reason why the rules were watered down was fear of sabotaging the weak recovery--not the lobbying of banks. The initial draft, say the regulators, simply created too much fear across the industry.  The original liquidity rule, for example, was considered exorbitant.  As one regulator put it, "There isn't enough stable funding in the world to meet the requirements."

My take-away:  the global financial system remains too heterogeneous for a tough new blanket of rules.  We have varying levels of maturity across the board--as in, so many frontier economies, so few rules that everyone can follow to the same degree.

The financial crisis hit the system too early for such tough, across-the-board regulations, and so we await the Great Rebalancing (which no one is quite sure how to achieve without great trade protectionism on the part of the debtor states) for such rules to emerge.  Until then, we have too many differing economies trying to do too many different things for uniform rules to emerge.