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G20, bank lobby gird for final Basel push

A traffic sign is pictured in front of the skyline of the the Canary Wharf financial district in London in this file photo from 2010.

LUKE MACGREGOR/Reuters

G20 finance chiefs, who are scheduled to gather for the final time in 2012 this weekend in Mexico, will have something to discuss other than Europe and the U.S.'s fiscal cliff.

The effort to overhaul international banking standards isn't going particularly well. The Basel Committee on Banking Supervision on Monday released its latest report card on implementation of the "Basel III" banking standards agreed at the end of 2010. The first of those standards are to take effect at the start of next year.

Few are taking the 2013 deadline seriously. Of the Basel Committee's 27 member countries, only eight have issued final regulations. Let's take a moment to recognize them: Australia, China, Hong Kong, India, Japan, Saudi Arabia, Singapore and Switzerland. (No, Canada, the country that would like to turn a reputation for sound banking regulation into a comparative advantage, is not among the early adopters of Basel III. Many of its revised rules remain in draft stage.)

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The disjointed application of Basel III is fodder for the opponents of financial regulation. The bank lobby will be able to argue – correctly – that the regulatory groundskeepers in the G20 are shaping an uneven playing field that advantages lenders in the countries that delay tougher banking standards.

Last year, the G20 named 29 big international banks that would be subject to enhanced regulatory requirements. But only six of those "global systemically import banks" will be facing Basel III standards on schedule next year, according to the Basel Committee. Put another way, 23 of those behemoths will continue to operate under regulatory requirements that were deemed inadequate after the financial crisis.

Given the importance of making the banking system more resilient, it is essential that the Basel framework is implemented consistently and according to the globally-agreed timelines," the Basel Committee said in the report. The committee, led by Swedish central bank governor Stefan Ingves, called on the G20 governments to live up to their commitments.

No one said agreeing on global financial regulations would be easy.

Politicians pushed through legislation with urgency knowing the window to do so remains opened only as long as the voting public is focused on the issue. But that was only the first hurdle.

The quest for internationally consistent financial regulations that reflect the modern international financial system now is getting bogged down in the rule-making phase.

Christine Lagarde, the managing director of the International Monetary Fund, told an audience in Toronto last week that she sensed momentum was waning due to "fatigue," a reason for concern because about a quarter of the G20's regulatory agenda remains unfinished. "The time has come to complete the job that we set out to do at the time of the crisis," she said.

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Ms. Lagarde's call will put to the test a relatively new innovation in global policy making: moral suasion. The Basel Committee's report card is meant to embarrass the laggards and shine a spotlight on the leaders.

The former is important because authorities believe investors will reward those countries that adopt the soundest financial regulations. Judging by the bank lobby's resistance to the G20 changes, it's reasonable to assume the financial industry doubts this argument. We'll soon find out which side is right.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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