I’m unapologetically happy and optimistic about the outcome of the Basel III process, and I haven’t been impressed by most of its critics — until now. I’m unapologetically happy and optimistic about the outcome of the Basel III process, and I haven’t been impressed by most of its critics — until now. In two posts, the basel 3 accord investopedia forex at the Economist and the second at The American Scene, Noah Millman does an excellent job of explaining the biggest weakness with Basel III.
The problem is that while Basel II was a bold experiment which took a decade to put together and which even then never really got implemented, Basel III was much more of a rush job, and therefore could not be a soup-to-nuts reimagining of what a global macroprudential regulatory regime should look like. Even if that were a good idea. Instead, Basel III is essentially a bold new layer built over the old Basel II architecture, in much the same way that early versions of Windows were layered on top of DOS. And just as early versions of Windows shared some of the weaknesses of DOS, do has Basel III inherited some of the problems of Basel II. That makes a certain amount of sense, but there are two main problems with it.