The financial industry throughout history has borne witness time and again to acrophobic highs and black dog lows driven by the possessed spirits of market participants. Be it tulips, stocks or packages of subprime mortgages, the historical analogies and clear excesses are easy to discount in the moment. Yet no sooner has the dust settled than we begin to see the next wave of possessed spirits — those looking to make well-intentioned, but ill-conceived, changes to ensure that the same crisis never happens again.

As the global economy emerges from the greatest financial crisis of our lifetime, the Bank for International Settlements through the Basel Committee on Banking Supervision has designed proposals — commonly known as Basel III — intended to strengthen capital and liquidity requirements for the global financial system.

Overall, we agree that the global financial system needs to be better regulated and capitalized, but the desire for reform must be balanced against the needs of a growing global economy. We believe that the Basel III proposals have been constructed with a myopic focus on global financial stability that will negatively impact credit availability and global economic growth. For consumers, small and midsize businesses and municipalities, one of the most significant and unintended consequences of this reform process may be the new roadblocks to obtaining cost-competitive "bread and butter" lending products such as mortgages, credit cards, business loans and working capital facilities.

Investors, bank regulators and bankers recognize that liquidity — shorthand for the free flow of money between market participants — is the "lifeblood" of the global financial system. A social good is derived from banks' willingness to take on liquidity risk as it creates the capital for businesses and individuals to invest in longer-term assets.

We believe the Basel III proposals jeopardize this delicate balance between risk and reward. For the consumers and small and midsize businesses that managed their balance sheets responsibly, the proposals could have the perverse effect of conveying the cost of others' less-responsible behavior onto them — the segment of the population integral to economic recovery.

If liquidity is the lifeblood of the global banking system, then capital is its bones and ligaments. Basel III seeks to increase the strength, consistency and endurance of the global banking system to ensure that it remains standing and strong if and when another "black swan" comes home to roost. This won't be achieved by demanding a level and type of bank capital that ends up restricting liquidity and discouraging shareholders.

While taxpayers and politicians are not necessarily interested in the negative implications for shareholders, they should be concerned that declining returns on equity for banks will lead to less capital allocated by investors into the banking sector. With less capital, banks will have less credit to extend and the limited credit available will be more costly. Taxpayers and politicians do care about this consequence.

The proposals include an increase in the framework of assets supported by capital to further take into account off-balance-sheet, counterparty and market risks, and will build upon previous Basel reforms on capital allocation for trading books and securitizations. The proposals will also make banks subject to a capital charge for mark-to-market losses.

While these issues need to be addressed, we are not convinced that they can be thoroughly analyzed and properly calibrated over a 12-month assessment period — an extraordinarily brief time frame when it comes to bank standards-setting. The consultative document was released in December 2009, and the committee is conducting its impact assessment, with an expectation of releasing a comprehensive proposal by the end of this year and implementing the proposals by 2012. In light of the past several years, we commend the BIS for its comprehensive approach to reform, but we strongly warn against trying to implement the breadth and scale of the proposals in so short a time period.

We have come through a terrible crisis. I continue to trust that the committee will consider the weight of its proposals, stand up to the pressures of public anger and political positioning and execute their responsibility in an objective and analytical manner. If we rush into the type of change envisioned in Basel III, we risk disrupting the complex web of global capital flows that the developed and emerging world economies depend on. To the Basel Committee, I say, solve for the intended consequence or else you promote the unintended consequence. Or, as the old adage goes: "Discretion is the better part of valor."

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