Canada’s enthusiasm for Basel III threatens to do more harm than good

financialpost.com:

Following the 2007-2008financial crisis, central banks from 28 countries and bank regulators devised an international regulatory accord called Basel III. Published in 2010, it promised common standards for measuring, reporting and managing financial risk across all 28 jurisdictions by imposing new, higher capital charges — the money a bank holds in reserve to cover bad loans and losses from trading stocks, bonds, derivatives and other financial products.

Basel III’s complex methodology is the stuff tech geeks dream of. Small armies of PhDs in mathematics and physics, consultants, project managers, business analysts and change managers were hired by banks around the world at a cost of hundreds of millions of dollars to assess and implement it. Basel III is full of terms ordinary people have never heard of — risk-weighted assets, fundamental review of the trading book, output floors — the kind of technical jargon that in plain speak means more constraints on bank lending and trading.

Canada was an enthusiastic voice for global change and a respected one. Canadian banks were a model of financial stability when 25 banks in the United States failed in 2008, and almost 400 more failed in the following three years. In 2010, devising very conservative rules in Basel III for banks to guard against losses was understandable in the U.S., European Union and United Kingdom.

But given the performance of the Canadian banking system throughout and after the financial crisis of 2007-2008, Canada is the last jurisdiction that needed to adopt Basel III.

In 2010, the Basel III plan was for the 28 countries to implement the change between 2013 and 2015. Yet, implementation was repeatedly delayed for various reasons. It was too complex