Abernathy states the Basel rules "are seriously out of touch with the laws, customs and economic conditions in the U.S." Nothing could be further from the truth. Why does Basel III now have guidance on leverage, liquidity, SIFIs, mortgage-backed and other asset-backed securitized products in the trading book? The items are very much related to the global financial crisis caused and exported by big banks in the U.S. If he had been referring to small or community banks, then it would be fair to say that Basel III was not created for them.
Abernathy goes on to critique the "Basel liquidity plan" because it "assumes that banks will lose significant amounts of deposits when the economy becomes shaky, but U.S. banks actually gained deposits during the recession." Yes, deposits increased in the U.S. because investors moved out of equities and bonds into deposits. Yet, depositors could have just as easily fled.
Finally, Abernathy states that amongst the bankers he has known "there is a common theme that draws them to a banking career: the desire to be part of economic growth, to be part of the job that banks do of bringing savings and investment together to build local and national economies."
This statement conjures George Bailey of "It's a Wonderful Life" trying to save the Building and Loan in Bedford Falls, but it's been a long time since that's what systematically important banks were about. The reason Basel III has become so much more detailed is because banks have become bigger, more complex, and more connected to the global economy.
Until shareholders heighten risk management practices and hold bank management accountable, bank regulatory frameworks, even imperfect ones, will be critical in trying to minimize the contagion that badly-managed banks can inflict on you and me.
Mayra Rodríguez Valladares is a managing principal at MRV Associates, a New York based capital markets and financial regulatory consulting and training firm. She also teaches at New York Institute of Finance. She can be reached by email at MRV@Post.Harvard.Edu or Twitter: @MRVAssociates.
This is yet another example of developing a plan to "save the world" by killing the people. The net effect of Basel III will be a reduction in credit availability.