How effective will Basel be?

Of the many reasons why Asia (outside of Japan) weathered the Great Recession more ably than other parts of the world, one of the most important was the fact that the region never experienced a financial crisis. The banks of Asia generally avoided indulging in the toxic sub-prime securities that tanked some of Wall Street’s most famous institutions. Part of the reason was they could earn real returns in their core business – lending to expanding companies in their high-growth home economies.

Of the many reasons why Asia (outside of Japan) weathered the Great Recession more ably than other parts of the world, one of the most important was the fact that the region never experienced a financial crisis. The banks of Asia generally avoided indulging in the toxic sub-prime securities that tanked some of Wall Street’s most famous institutions. Part of the reason was they could earn real returns in their core business – lending to expanding companies in their high-growth home economies.

By Simon Johnson The international discussion among government officials regarding bank reform is, at an informal level, going better than you might think.  Top people in the “official sector” are increasingly willing to confront the banking lobby and even refute its more egregious claims, particularly the completely erroneous notion that making banks safer – by requiring them to hold more capital – would actually hurt the broader economy and undermine growth.

Monday’s Counterparties email went out under the headline “QEBasel“, which may or may not have been an effective way to communicate that the latest relaxation of Basel rules was emphatically done with monetary policy in mind, rather than regulatory prudence. Under the new rules, it might take banks longer to get to a truly safe place, but at least those banks will (we fervently hope) lend more in the meantime, giving a much-needed boost to global growth.

The LTRO may have ignited the bond markets and the stock market but it did not do anything for bank lending. The New York Times reports Survey of European Banks Shows a Sharp Cut in Lending