BANKS AND BASEL III

ALMOST exactly two years to the day that the crash of Lehmann
Brothers on Wall Street signalled the seriousness of the impending global financial crisis, came news of progress on international supervision of banks' activities. The Swiss-based Basel Committee on Banking Supervision and representatives of the banking industry have reached agreement on how much “common equity” banks should hold in order to ensure that they will not crash in any comparable future crisis. Until now the core capital requirement has been an inadeqaute two per cent of assets but the agreement just reached, known as Basel III, will require a minimum of seven per cent. Unfortunately what looked like a significant step forward seemed somewhat less impressive when it became known that the banks had secured an agreement that the new target need not be reached until 2019 even though most UK and US banks are now already Basel III-compliant.

The slow pace of international reform in banking contrasts strongly with the rapid return that banks have used in the time available to return to “business as usual” practices. The prospects for serious progress on such issues as excessive bonus payments, on the division between high street and investment banking and, above all, on overcoming the “too big to fail” syndrome, still seem small. Basel III is an improvement and can be regarded as work in progress but greater urgency neeeds to be attached to other reforms.