Earlier this week, on the eve of a G-20 meeting, some European ministers were not only threatening to implement tough restrictions on the financial services industry, but they also asserted that the G20 was largely in alignment. That did not seem credible, particularly given the US propensity to talk tough and do very little on this front.
Predictably, fissures are already emerging in this supposedly united front. Two days later, the officials are already bickering. The US, backed by the UK and Canada, is pushing for new rules that call for more stringent capital requirements for banks. The EU ministers are not keen, arguing that first Basel II needs to be put into effect, then additional reforms can be implemented.
And why the focus on Basel II? European countries adopted it, and the US has not (yet). As
France and Germany were cool as they pushed for more countries to adopt the Basel II rules in full, something which the United States has resisted.
Geithner wants the new framework to be broader and tougher, requiring banks to hold more capital and be in place by the end of 2012 — an ambitious target as Basel II took a decade to thrash out.
This vignette illustrates why the banksters have nothing to fear. First, despite bold talk about coordination and harmonisation, national officials will look after their own institutions first.
And why are the EU officials so keen to defend Basel II? It isn’t as if compliance with Basel II meant European banks dodged the financial crisis bullet. In fact, the real reason for upholding the standard is that Eurobanks made an art form of gaming it, with the result that some of the large banks are believed to have even weaker capital bases than US banks (given the widespread regulatory forebearance, it’s harder to be certain where many banks stand).
Second is that it takes a very long time to reach agreements of this sort. Geithner knows that full well, which is why he can take what looks to be a bold stance without worrying about needing to climb down for his original stance without it being too obvious that he has done so.