Thursday, April 9, 2009

G20 framework

The G20 nations released a communique stating their intent to strengthen the financial system dated 4-2-09.In the body they state that all nations will progressively adopt the Basel II capital framework.These are banking regulations designed to insure banks keep adequate capital on hand to guard against risk.

Sheila Bair is the FDIC chairman.In June,2007,she spoke out against Basel II stating:
"There are strong reasons for believing that banks left to their own devices would maintain less capital -- not more -- than would be prudent. The fact is, banks do benefit from implicit and explicit government safety nets. Investing in a bank is perceived as a safe bet. Without proper capital regulation, banks can operate in the marketplace with little or no capital. And governments and deposit insurers end up holding the bag, bearing much of the risk and cost of failure. History shows this problem is very real … as we saw with the U.S. banking and S & L crisis in the late 1980s and 1990s. The final bill for inadequate capital regulation can be very heavy. In short, regulators can't leave capital decisions totally to the banks. We wouldn't be doing our jobs or serving the public interest if we did".

You can be certain that she will now be in lockstep with Obama on promoting this new Financial Stability Board as a positive action in direct conflict with her previous statement.More to come...

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