FT: Diluting Basel III is a huge mistake
10 August 2010
The new leverage ratio, proposed at a mere 3 per cent, should be increased. More demanding stress scenarios should be required to assess short-term liquidity needs. A rule to better match the maturity of assets and liabilities should be reinstated.
It is ironic that the Basel Committee on Banking Supervision has concluded, in joint studies with the Financial Stability Board released this week, that economic growth is not very sensitive to tighter capital standards. For it was precisely fears about choking off the nascent recovery that made the Basel Committee water down its reform proposals last month.
The Basel Committee must use the little time it has left – new capital rules are due to be finalised before the Group of 20 summit in November – to correct its mistake. The new leverage ratio, proposed at a mere 3 per cent, should be increased. More demanding stress scenarios should be required to assess short-term liquidity needs. A rule to better match the maturity of assets and liabilities should be reinstated. And capital ratios, which have yet to be set, must be at least doubled from Basel II.
© Financial Times
