Basel global bank regulations: What blocked timely warnings from even being heard and much less considered?

Charles Goodhart has written “The Basel Committee on Banking Supervision: A History of the Early Years 1974-1997, 2011” For someone like me who became slightly aware of the existence of the Basel Committee in 1997 and who as an Executive Director of the World Bank 2002-04 questioned much of what it was up to, it is an extraordinary interesting book and I will comment it frequently… jumping all over it.

Close to the end, page 578, Goodhart writes. “The regulatory process itself is likely to exacerbate internal self-reinforcing dynamics… by introducing a single set of international standards, it tends towards making more banks behave in the same way at the same time (Alexander, Eatwell, Persaud and Reoch 2007). Thus it adds to the likelihood of crowded trades forcing major and sudden price readjustments”.

Precisely, in April 2003, a time during which Basel II was discussed, when commenting on the World Bank’s Strategic Framework 2004-06, I formally warned:

“Ages ago, when information was less available and moved at a slower pace, the market consisted of a myriad of individual agents acting on limited information basis. Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg. Once again, perhaps only the World Bank has the sufficient world standing to act in this issue. 

A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

How do such comments become so totally ignored? Was it because I did not belong to any mutual admiration network of experts?

My comments on the World Bank's Strategic Framework 04-06

"Basel dictates norms for the banking industry that might be of extreme importance for the world’s economic development. In Basel’s drive to impose more supervision and reduce vulnerabilities, there is a clear need for an external observer of stature to assure that there is an adequate equilibrium between risk-avoidance and the risk-taking needed to sustain growth. Once again, the World Bank seems to be the only suitable existing organization to assume such a role."

“Ages ago, when information was less available and moved at a slower pace, the market consisted of a myriad of individual agents acting on limited information basis. Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market and we are already able to discern some of the victims, although they are just the tip of an iceberg. Once again, perhaps only the World Bank has the sufficient world standing to act in this issue.” 

"A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind. Who could really defend the value of diversity, if not The World Bank?"

PS. A 2003 letter in the Financial Times on this systemic risk

PS. My 2019 letter to the Financial Stability Board