Basel
Basel
Denying credit solely to reduce the financial system's vulnerability could mean missing a unique opportunity for economic growth.
All development entails risk; by definition, the path is strewn with bankruptcies and tears, set against the human pattern of taking one small step forward and 0.99 steps back. Perhaps, then, the best regulatory approach is to allow some banks to fail before their problems become calcified or too massive to manage.
It is possible that developed nations would never have developed under the yoke of puritanical financial regulation—hence my insistence since 1997 on the need to consider the development perspective when drafting regulations. To paraphrase a well-known sentiment: financial system regulation is too important to be left in the hands of regulators and bankers alone.
Moreover, in a world that so loudly champions the virtues of the market's "invisible hand"—with its millions of mini-regulators—it is surprising to see the Basel framework unquestioningly delegate so much responsibility to a handful of highly fallible credit rating agencies.
Basel has recently been the subject of significant criticism:
In its *Global Financial Development Report 2003*, the World Bank—referring to the new methods for calculating capital requirements known as Basel II—warns of the risk that developing countries’ access to sources of finance could become more expensive and difficult, and that international banks could be favored to the detriment of domestic banks.
Dr. Alexander Kern of the University of Cambridge recently stated at a seminar organized by the G24 (developing countries) that, given that the standards have been developed almost exclusively by European countries (the G10), they lack the transparency and legitimacy required to justify subjecting them to a quasi-mandatory international legalization process.
The U.S. Comptroller of the Currency—who oversees 55% of the country's banking sector—expressed dissatisfaction with the Basel II standards and even suggested that they might simply ignore them.
Friends, perhaps it would be wise to include a note in every set of guidelines issued by Basel: “Warning: excessive banking regulations from Basel can be highly detrimental to your country's development.”
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