That big banks are not without sin is undeniable. But the mortification proposed for them by the Basel Committee is so purgative that it throws into doubt the future of finance as we know it. Balancing needed correction with appropriate risk-taking is the act Basel must now pull off. It's vital that the new capital and liquidity rules address known wrongs without wreaking wanton havoc.
That much is right with the new rules needs to be said — had aspects of them been in place before the debacle, its cost would have been less and many institutions would have been left standing. But, the sum total of the many parts of the massive consultative paper is so huge that we think of it as a monster-truck pile-up. The weight of all of the rules heading for global banking organizations will leave them little more than a smear on the financial system. This will exacerbate the trend toward "shadow" banks — still above and beyond Basel's reach — a perverse result indeed as regulators reckon with the $8 trillion or so in shadow-bank assets in the U.S. alone.