- The latest batch of rules in the Basel process will introduce crucial changes
- Many in the banking industry say the rules are too restrictive
- Quantitative analysis shows they actually don’t go far enough
- More changes are in store, leaving the industry in uncertainty
The global financial crisis of 2007-2008 showed how undue risk-taking, and even fraudulent practices, had become commonplace in the banking industry worldwide. Supervisors and regulators watched helplessly as a sudden cascade of major bank failures plunged the leading economies into a severe (and, to some extent, still ongoing) recession. For the next decade, overcoming the weaknesses of existing national and international regulatory frameworks became a top priority.
When the crisis hit, several regulatory safeguards were already in place in the banking industry that were supposed to prevent a systemic collapse. Among them was the set of recommendations on banking regulations put forth by the Basel Committee on Bank Supervision (BCBS).