- The Washington Times - Thursday, December 13, 2012

Global policymakers insist that the Federal Reserve’s failure to implement new banking rules on time is nothing to worry about, but critics of the international plan to strengthen the financial system say this is evidence it’s falling apart.

In response to the financial crisis, the Fed and central banks in 27 other nations agreed to implement a global accord known as Basel III that would require banks to hold more cash to protect against bad loans, limiting the amount of money they could invest. The rules are scheduled to phase in gradually between 2013 and 2019, but many stand to miss the first deadline at the beginning of next year.

The Basel Committee on Banking Supervision, a Switzerland-based group of national regulators that originally negotiated the tighter banking requirements, announced Friday that just 11 of the 28 member countries are ready to implement the new rules on Jan. 1. The U.S. and European Union are among the most important players that are behind schedule.

But regulators aren’t panicking.

“We’re comfortable with what’s going on,” said Stephen Cecchetti, chief economist at the Bank for International Settlements, which contains the Basel Committee. “There are many of them that are already finished, some of them that are going a tiny bit slower, but all of them are committed.”

Basel III, which would triple the capital banks are required to hold to 7 percent, will use tools such as a leverage ratio and liquidity ratio to measure banks’ progress.

In the long run, banking regulators are still “on pace” to meet the requirements, Mr. Cecchetti argued.

“Short delays measured in months of implementation of the standards seem to be not terribly important,” Mr. Cecchetti said.

Critics disagree.

Dick Bove, a bank analyst at Rochdale Securities, says the sluggish pace among so many participating countries is not surprising, considering that he thinks the global accord will fold eventually.

“I, personally, think Basel III will fail,” Mr. Bove said. “I believe the reason for the Fed’s delay is directly associated with the probability that Basel III will never go into effect.”

Some critics question whether the new regulations would slow the global economy, but the Bank for International Settlements points to a study that shows Basel III would have little impact on the banking system.

“Overall, the economic impact assessment suggests that even a significant increase in capital in banks would have only a very small, minimal impact on growth and inflation,” Mr. Cecchetti said.

In fact, most banks are in “good shape” and are already prepared for Basel III, he added.

“In the case of many banks, they already meet the 2019 standards, so they don’t have to do anything,” he explained. “This is not an issue.”

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