Basel III--the directors' cut

FT, a while back, ran a full-pager analysis that said Basel III?  Ho hum, as the banking industry's regulators were cowed by the efforts of industry lobbyists into diluting the new rule-set package.

Still, when the deal was done last weekend, a lot of pubs hailed its historic nature.  So yeah, higher capital standards for banks, but not so high that most don't already meet them.  As for smaller banks?  Tougher row to hoe

Basel III is described as being different from what the US did under Obama:  "prescriptive rules to steer U.S. banks away from past errors."  Instead, Basel III allows the risky behavior to continue so long as the banks set up bigger capital cushions to absorb losses.

As rule-set resets go, a sort of reversal of the usual philosophies, with the global rules being more passive while ours are more active.   

The big thing, of course, is that some global rule-set package was agreed upon in the first place.

And yeah, markets around the world seemed to like that.

Is the reset finished?  Mebbe . . . mebbe not.  Some banks fear their national regulators will now step in with tougher standards, leading to "regulatory arbitrage" whereby banks seek out the locales with the loosest rules and shun those with the toughest.

A never-ending struggle . . ..

Big Oil plans its Big Spill Force

D’oh!  Big Oil didn’t have a rapid-response force for deepwater disasters before Deepwater Horizon!?!?!

Well, they do now, so their industry was perturbed enough to create a rule-set where previously none was thought worthy enough to exist.

Exxon, Chevron, ConocoPhillips and Shell all pitch in a quarter billion to make it happen. Goal is capacity to capture and contain up to 100k bpd at 10k feet below the surface.  Deepwater’s numbers were 60k bpd at 5k depth.

New system will feature several oil-collection ships and other subsurface gear will, coincidentally enough, resemble the ad hoc package that BP was forced to invent on the spot, thanks to Deepwater.

You can just slap my forehead and utter your favorite interjection.

BP perturbed, oil industry not so much

FT story on how the oil industry has resigned itself to tougher drilling rules from the US.  So while BP mournfully proclaims that the Deepwater Horizon disaster will change the industry forever, most companies are saying only that the US’s looser rule set is now being tightened up to global standards, and that none of the changes will particularly prevent future accidents.

How so?  BP simply ignored a bunch of industry best practices on Deepwater, so a wake-up call for them but not for others, who refuse to take such risks. 

And yeah, outside the US, most national regulators are buying that story from the oil industry, so no great copycat stampede globally for moratoriums on drilling.  Instead, the big rule-set reset is mostly limited to US-based drilling, “where the industry had for decades resisted tougher rules”—apparently with great success.

So, as far as System Perturbations goes, this one seems limited—for now—to the politically entity in question.

Dodd-Frank will not lead to global imitations

Economist editorial on the 2,300-page bill.

What it got right was dealing with the fragmented regulatory nature of our financial system.

But the rule-set's global influence will be limited:

At the G20 Mr Obama boasted of “leading by example” on financial reform. In fact, Dodd-Frank is too idiosyncratically American and too incomplete to be a true template for others. And his claim that it would keep a financial crisis like the one the world just went through “from ever happening again” is bound to prove wrong. Yet imperfect though it is, the reform is proof that even a government as fractious as America’s can move with impressive speed when the motivation is there.

Expecting more or better in this age of globalization's rapid expansion is simply unwarranted. We may have birthed the system, but it has grown in complexity and heterogeneity beyond our ability to lead by example in rule-set resets.

The rule-set clash heats up on medical pot

 

NYT story on the growing complexity of new rules regarding medical marijuana, with Colorado as ground zero for experimentation.

Opening bit:  don't assume you can get rich quick selling medical pot, because the restrictions are dazzlingly complex.

“You’d never see a law that says, ‘If you want to sell Nike shoes in San Francisco, the shoes have to be made in San Francisco,’ ” says Ms. Respeto, sitting in a tiny office on the second floor of the Farmacy. “But in this industry you get stuff like that all the time.”

As usual, the economics races ahead of the politics, but the politics is struggling to catch up.

One of the odder experiments in the recent history of American capitalism is unfolding here in the Rockies: the country’s first attempt at fully regulating, licensing and taxing a for-profit marijuana trade. In California, medical marijuana dispensary owners work in nonprofit collectives, but the cannabis pioneers of Colorado are free to pocket as much as they can — as long as they stay within the rules.

The catch is that there are a ton of rules, and more are coming in the next few months. The authorities here were initially caught off guard when dispensary mania began last year, after President Obama announced that federal law enforcement officials wouldn’t trouble users and suppliers as long as they complied with state law. In Colorado, where a constitutional amendment legalizing medical marijuana was passed in 2000, hundreds of dispensaries popped up and a startling number of residents turned out to be in “severe pain,” the most popular of eight conditions that can be treated legally with the once-demonized weed.

More than 80,000 people here now have medical marijuana certificates, which are essentially prescriptions, and for months new enrollees have signed up at a rate of roughly 1,000 a day.

As supply met demand, politicians decided that a body of regulations was overdue. The state’s Department of Revenue has spent months conceiving rules for this new industry, ending the reefer-madness phase here in favor of buzz-killing specifics about cultivation, distribution, storage and every other part of the business.

Whether and how this works will be carefully watched far beyond Colorado. The rules here could be a blueprint for the 13 states, as well as the District of Columbia, that have medical marijuana laws.

The rule-set reset unfolds . . .

Slowly grind the gears at Basel

WSJ front-page headline, though now a week old. 

But the nice thing about this rule-set reset is that it drags on with all the urgency usually mounted by bankers when it comes to unpleasant change.  So it’s hard to fall behind the curve much.

The gist: large multinational banks will be forced to raise “vast sums to cushion any future losses.”

The give:  the new rules won’t go into effect for a bit.

The “race” as it is called:  to hammer out the new rules by year’s end.

The two main players are the G-20, whose financial ministers met this week in Seoul, and the usual Basel Committee on Banking Supervision.

In many ways, the new rules will simply update the old Basel package initially set up in the late 1980s.

Perhaps it will be known as Basel III (a previous revamp years ago was dubbed Basel II).  I guess these are becoming like GATT-cum-WTO trade rounds.

Always tricky stuff to negotiate, so naturally drawn out.

System perturbed? You bet. Rule-set reset? Did not take.

WAPO piece saying no comprehensive global rules likely to emerge from recent financial crisis primarily because the EU and the US cannot agree on any one approach.  We agree on desired ends; we cannot yet agree on chosen means.

This was always the downside of the collective stimulus packages working so well in the short run: the crisis does not end up being enough to foster systemic change.

The go-your-own-way approach undoubtedly leave us with a patchwork of rules, whose gaps will inevitably be exploited--once again--by innovators both well-meaning and nefarious:

. . . a resulting patchwork of reforms could allow companies to continue exploiting national differences by moving operations to countries where conditions are most favorable and thwart the efforts of regulators to spot financial threats early on. The outcome, for instance, could be very different ways of banking in New York and the financial capitals of Europe, prompting leading American firms to shift their riskiest activities overseas beyond the purview of U.S. regulators.

The evolving divide, analysts say, is spooking investors and contributing -- along the European debt and euro crisis -- to the sharp losses in recent days on stock markets from New York to Frankfurt to Tokyo.

Plenty of points of agreement (e.g., next time, the financial community itself must pay), the article notes, but wider perceptions of profound philosophical differences creates uncertainty in the system.

US Coast Guard: "Technology has outrun the current regulations"

WSJ piece that says oil rig blowout in Gulf "has prompted scrutiny of the U.S. Coast Guard's ability to carry out even its limited role in preventing disaster on rigs."

CG naturally replies that it's short on resources.

Title quote comes from Lt. Cmdr. Michael Odom, who--career-wise--is just the right age to offer that judgment (been in long enough to spot the rule-set gap, and with enough of a career ahead of him to take it seriously).

The facts:  USCG regs for the massive moving regs date back to 1978, when they were smaller and operated mostly just offshore.

Even when the USCG does get involved, it's mostly paperwork, because the regulation of the rigs lies with the Interior Dept's Minerals Management Service.

Most experts argue to revisit this regulatory split in light of the recent disaster.

But here's the hitch, just like with ships, most of the rigs are under foreign flags, meaning the nation of registry is responsible for oversight.

The Transocean rig that went to the bottom was registered under the Republic of Marshall Islands, which in turn hired a private contractor to do any inspections--a common industry practice for such states.

When the USCG shows up to any rig, the difference in review shows:  foreign rigs get the hours-long treatment but US-registered rigs get the days-long review.

Underlying tone:  2007 independent assessment by fmr USCG Vice Admiral found that, once the USCG got sucked into the Department of Homeland Security, safety maintenance work went out the window in favor of c-terrorism.