Basel I, which laid the foundations for bank solvency around the world, was quickly found wanting as markets grew in complexity in the 1990s.
Basel II, which followed almost a decade of painstaking negotiations, failed both to support the effective operation of market forces and to ensure the costs of regulation were proportionate to the levels of risks banks were running.
So what hope for Basel III, which – perhaps unsurprisingly – was in large part thrown together in just more than a year? Experience should temper expectation.
The thorny and currently fashionable issue of LLPs may well be successfully addressed, and investors and shareholders may one day be presented with much ‘cleaner’ information. But the nature of the game dictates that the question of transparency will be shifted elsewhere and the wider, seemingly eternal fight for supremacy will continue to unfold.
What we are left with is a state of permanent tension. Both sides will go on enjoying triumphs and suffering setbacks, but it is highly unlikely there will ever be an outright winner.
Perhaps the main point institutions and regulators should keep in mind is that there should be no outright losers. As has been witnessed many times, investor and shareholder confidence based on false information is unsustainable.
Dr Robert Webb is an associate professor of banking at Nottingham University Business School and a member of its Centre for Risk, Banking and Financial Services
