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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

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September 14, 2010

In response to the global financial crisis and the subsequent weak credit growth by Banks, the Basel Committee on Banking Supervision announced new capital requirements for internationally active banks.

The new rules will require banks to hold levels of common equity of at least 7% of their assets by January 1, 2019, up from 4% in the U.S. and just 2% internationally. Specifically, the minimum common equity requirement goes up to 4.5%, and banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%. The new rules will be phased in over the next 9 years to allow banks to gradually build their reserves, because of the fragile ground banks currently stand on as they recover from the global financial crisis.

That is getting tough on banks? The reality is that a Basel III world will not look hugely different to the one from which the last crisis sprang. The systemic risks are the same as they were two years ago.In the view of the markets, the banks have won. They call the shots these days.

For the global bankers Wall Street is the economy. The wealth of a nation is worth whatever banks will lend, by collateralizing the economic surplus for debt service. If academic textbooks pretend that the economy is all about production and consumption – factories producing the things their workers buy, in Washington and at the Congress hearings into global financial crisis the economy is all about lending and debt, all about balance sheets.

The situation is that the various bank bailouts in Europe and the US depend on the economy at large being sacrificed (but not Wall Street) due to keeping the bad debt on the books. 'Sacrificed 'refers to the cost of a recession, austerity cuts in spending, and rising unemployment

The banks are not going to be broken up -- their casino arms hived off to protect the deposit base from the risk-takers---nor will they be cut down to size. They have become too powerful and do not need to co-operate with national governments.

| Posted by Gary Sauer-Thompson at 10:58 AM |