September 15, 2010

Break up the Basel Committee

Sir John Kay in “We must press on with breaking up banks” September 15, writes “The Basel regime based on capital controls proved useless in averting the crisis: indeed it was a principal cause of the regulatory arbitrage that led to the proliferation of complex debt instruments” and that the “pledges made in the immediate aftermath of the crisis have proved empty”.

The correctness of the above could not be more evidenced than by Basel III. It is not only a weak response to what it wants to respond, but, worse than that, it does not even try to respond to the problem of the regulatory arbitrage the regulators have caused with their arbitrary and inexplicable risk-weights.

From what we see the effort to break up banks or in other ways fix the financial sector, must start with breaking up the regulatory monopoly of the Basel Committee.