Saturday, August 17, 2013

Poor Pakistan! Another developing country being held back by the Basel Committee

I read that “In order to further strengthen the capital related rules the State Bank of Pakistan (SBP) has decided to implement the Basel III reforms issued by the Basel Committee on Banking Supervision”

It is impossible for me to understand how a developing nation can adopt a bank regulatory framework which has, as its prime pillar, capital requirements which favor bank lending to The Infallible those already favored from being perceived as absolutely safe, and discriminate against The Risky, those already being discriminated against because they are perceived as risky.

If a developed and rich country, like France, wants to call it quits and not risk anything more, and accepts Basel II or III, and decide to castrate their banks, although that will not serve their real economy well, or save them from bank crises, that is their business… but, Pakistan?

In 2007 at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document in titled “Are bank regulations coming from Basel good for development?" Unfortunately it received no attention, as the discussions which followed there were basically only focused on promoting, not development, but political agendas.

And little has changed since those meetings. For instance, even Professor Joseph Stiglitz, who chaired the Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System, and who recently published a thick book titled "The Price of Inequality: How Today’s Divided Society Endangers Our Future" has still not understood how the risk-weighting of the capital requirements odiously favors bank lending to “The Infallible”, the haves, the old, the past, the AAAristocracy, those already favored by banks and markets, and thereby discriminates against “The Risky”, the not haves, the young, the future, those already discriminated against by banks and markets.

Developing nations, you need all your banks to exercise reasoned audacity and not to just follow the risk aversion instructions given by some overly anxious and nervous nannies, who have not even defined the purpose of the banks they regulate.