Two years to the week after the collapse of Lehman Brothers, the new Basel III global financial regulations are out (what’s that?) and the British Bankers’ Association complains on behalf of consumers everywhere: “This means the end of ‘cheap money’!”
Well. That is a good thing, is it not?
Remember what’s at the heart of our global environmental and social challenges:
- Our key resources are too cheap – be they food, oil, money.
- Our systems are too good at separating reward from risk – be it here and now, over time, through geographies.
Are there insights to be gleaned for other sectors from how financial regulators conceptualize and try to manage these issues? The financial system represents our economy at its most abstract and quantified, so it’s fascinating to think about, anyhow.
Basel III raises the Tier 1 capital requirement, which means that banks will need to hold more common equity to buffer against unexpected losses, which essentially comes down to this: more skin in the game. And more protection against financial crises, and, apparently, good things for the economy (at least as measured through GDP – see explanation from finance blogger Felix “Shedding No Tiers” Salmon).