FinRegRag describes a part of government with a real scientific attitude.
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This past Tuesday, the Brookings Institution hosted Fed Vice Chair of Supervision, Michael Barr, who spoke about progress on the US Basel III Endgame revisions, given that the last version faced much resistance within the Fed and beyond. Vice Chair Barr’s genteel nature was evident during the question & answer period after the 24 minute mark, when he began by saying “life gives you ample opportunity to learn and relearn the lesson of humility.”
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When have you EVER heard a politician talking about humility?
The main issue is that the new Basel international rules will make banks more wasteful, not more secure.
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In a post last year, I raised concerns about how much more complex the regulatory code for bank capital might become after Basel III Endgame. After all, when you add to what’s already there, that means even more resources devoted to hiring accountants, consultants, lawyers and quants to comply with the regulation and fewer resources for those seeking credit.
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Banks shouldn’t have to waste dozens of employees on satisfying a HUGE set of complex self-contradictory rules that don’t actually protect them. Careful analysts have reached the conclusion that insufficient capital causes bank crises, not bank runs at the consumer end. Bank runs are just a symptom, not the cause. And there are much simpler ways to tell when a bank is short on capital. Math is enough.
Why do the regulations miss their intended purpose? Because the international negotiators are only interested in compromise to reach SOME kind of document, not the real world consequences of their document. Dozens of nations with different systems and needs CAN’T possibly follow one set of rules. Modularity ALWAYS works better than centralization.
Parkinson as fucking always. Bureaucrats never want to solve problems, they only want to justify more budget and authority. If the rules actually prevent bank failure, the Basel rule-writers are out of a job.
Failure is the best way to get more budget and authority.
So it’s reassuring to see a few bureaucrats trying to break out of Parkinson.
Sidenote: The most recent bank runs didn’t involve real banks at all. The “banks” that failed last year were serving a few venture capitalists. They were more like family offices. Venture capitalists are fraudsters by definition, and when Powell halted the free money flow in 2022 their fraudulent fortunes collapsed.
Polistra's Mill 