HOWEVER long a storm lasts, clearing up takes longer. On December 7th Mario Draghi, president of the European Central Bank and head of the committee that approves global bank-capital standards, declared that revisions to Basel 3, the version drawn up after the financial crisis of 2007-08, were complete. The overhaul of the previous rules, which were blown away in the tempest, began eight years ago. The revised set, informally called Basel 4, will not take full effect until 2027.
That lengthy period of adjustment is one way in which Basel 4 is less demanding than banks, notably in Europe, had feared. Several other tweaks mean that the standards banks must eventually meet will be less exacting than first proposed. Already forced to bolster their balance-sheets with lots more equity—of which the crisis showed them to be woefully short—banks may deny that they have got off lightly. But they probably have.
Basel 4 was supposed to be settled a year ago. It wasn’t, because of a...Continue reading