16 Nov 2010
As appeared in the Financial Times on Tuesday 16th November 2010
Sir, While I agree with the core premise of Citigroup chief executive Vikram Pandit's article "We must rethink Basel, or growth will suffer" (November 11), I think there are other additional considerations that need to be addressed in respect of areas where Basel III requires further enhancement.
Firstly, the capital requirements negotiated in September do not nearly go far enough: they are not nearly sufficient to prevent a repeat of the 2007-2008 crisis and the subsequent government bailouts. We should look to the Swiss example where local regulators have required its biggest banks to set aside 80 per cent more capital than international competitors to cushion against potential losses.
Secondly, the Basel III regulation has addressed risk issues without completing a comprehensive analysis of the interactions between banking, the financial markets and the international economy. This has created market uncertainty as to the correct balance between systemic safety and supporting economic growth, making an emerging consensus harder to achieve.
Mr Pandit, however, puts his finger on the key determinant of the success of Basel III: consistency. This will determine the success or failure of Basel III.
If consensus fractures, it will raise the possibility that European banks will be unable to compete with the more risky balance sheet profiles of their global counterparts
