Business

Dare we wait for bank reforms?

BBC business editor Robert Peston on the delayed roll-out of regulations

Earlier this week, the so-called Basel Committee on Banking Supervision - the supreme decision making body for global banking regulation - decided to delay till 2018 the implementation of new rules that would strengthen banks.

Which is so far off that some would query whether those rules will ever really be implemented.

But Mervyn King, the governor of the Bank of England, told MPs today that more rapid implementation would have risked snuffing out our fragile economic recovery, because the effect of the new rules would have been to deter banks from lending.

As for investors, they love the delay: shares in banks have surged relative to other shares in the past few days.

Why is that? Well the new rules would force some banks to raise billions of pounds in new capital as a buffer against potential future losses. And whenever banks issue shares to raise capital, that reduces the value of existing shares.

Here's the paradox: investors positive reaction and the rise in banks' share prices will tend to reinforce economic growth and should thus strengthen banks; but if there turns out to be another banking crisis before 2018, banks may not be in optimal shape to cope with it.

PS I intend to write a longer analysis of Monday's revisions to the proposed Basel lll rules on banks' capital adequacy. There are reasons to be concerned about the foundations and philosophy of this attempt to learn the lessons of 2008's banking meltdown.

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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