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Basel Group Bends Over Backwards for Banking Interests

by James Jackson and Melanie Headley
Eyes On Wall Street |

If there were ever an opportunity for meaningful reform of the banking practices that contributed to the financial crisis, that time is now, when the memory of the recent crash is still fresh. The longer we wait, the less likely we are to see any real change. Less than two years after a financial crisis fueled by lax liquidity and capital requirements for banks, a key banking policy group appears to be backpedaling from its previous proposals for reform.

The Basel Committee on Banking Supervision was developed in 1974 by the central-bank Governors of the Group of Ten Countries. The aim of the Committee is to provide uniform supervisory standards and make recommendations for "best practice" approaches to banking.

Last December, the Committee appeared to be pushing for strong reforms. It proposed new standards calling for, among other things, more stringent capital requirements-- including a new approach to calculating capital. It also called for clearer liquidity standards, and a provision that would force banks to accumulate more capital in times of prosperity.

Now, in response to pressure from the powerful banking lobby, the Committee seems to have weakened its resolve to encourage meaningful change. Instead of following through with its December promises, the Committee concluded a recent meeting with considerable backtracking, including much softer proposals for capital requirements.