Why New Bank Capital Rules Could Make Things Worse

John Carney
CNBC.com
Sept 10, 2010

Investors will likely breathe a sigh of relief when international regulators reach an agreement on bank capital requirements this weekend.

Early reports suggest the required levels of capital will be much lower than feared, and the kinds of assets that can be used to meet the requirements more expansive than earlier proposals suggested.

But there is good reason to worry that far from making the financial system sounder, Basel III may introduce even more systemic risk into global finance.

The problem is inherent and probably unavoidable. Regulators want to achieve a world-wide harmony on bank capital rules. But by reducing the diversity of regulatory regimes, they inevitably increase the costs of regulatory error.

Full article here

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