A Message for Trump: Basel IV Will Kill Dreams of an Infrastructure Boom

Ever since the Financial Crisis, regulators have tightened their grip on banking activities (read: beaten up on banks) without taking note of unintended consequences. Prominent amongst these misguided regulatory interventions have been the Bank for International Settlements (BIS) mandates, which are touted as promoting global financial safety and economic stability. John Dizard of the  Financial Times has seen through the Basel Committee on Banking Supervision’s smoke and mirrors display and correctly concludes that the proposals provide background noise for the next crisis.First, the new “Basel IV” reforms will dampen economic growth globally. The European Banking Federation claims that increased capital requirements will cause European Banks to raise an additional €850bn of capital. This will exacerbate the credit crunch because banks can increase capital-asset ratios by either shrinking assets or raising capital. In both scenarios, deposit liabilities are reduced and money is destroyed. Slower growth in the money supply, broadly measured, slows the expansion of nominal GDP. The implications are dire because Basel IV seeks specifically to increase capital requirements on project lending and banks account for 80 percent of lending to the real economy in Europe.Second, Basel IV ’s push to standardize risk weighted asset calculations will actually increase risky activities. Unbelievably, Dizard reports, “under the current version of the Basel ‘standardiz...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs