Who will pay the recapitalization and new liquidity of the banks? Basel III regulations

Is the Basel Committee on Bankers Supervision regulations the solution for avoiding future financial crisis?

Answering those questions is important for understanding the ways selected by the international financial system to face future crisis.

The Basel Committee on Bankers Supervision of the Bank of International Settlements, BIS, has considered the scenario of an augment of the interest rates, among the measures for improving the capacity of the international financial system.

An increase in the bank lending spreads plus the restriction of the public spending in countries like Greece, Italy, Portugal and Spain would accelerate the recession in the Euro zone and in other regions of the world.

The Bank of International Settlements, BIS, is the central bank of the countries central banks; it was founded in the year 1930 in Basel, Switzerland, and its main function is preserving the global monetary and financial stability.

As a consequence of the financial crisis of the year 2008, the Committee on Bankers Supervision of the BIS proposed a set of measures entitled Basel III, resolutions for strengthen the world financial system. The measures comprise to enhance the reserves of capital and levels of liquidity of the banks. However, the problem is that those augments will be not paid by the owners of the banks but by the public, in other words, by the clients of the banks through the increase of the interest rates.

The macroeconomics effects of an augment of the interest rates are very important; one effect is the increase of inflation and the reduction of the private investment because many economic activities cannot pay more by their lending’s. This fact exerts an impact on the creation and stability of jobs and in the economic growth.

+ lending interest rates = + Inflation – Jobs – Economic Growth

The equation confirms clearly that the medicine might be worse than the illness.

In its Seoul Summit on 11 and 12 November 2010, the countries members of the G20 adopted the resolutions of the Basel Committee on Bankers Supervision, named Basel III, and this fact became the Basel III in a new instrument of international financial policy. The Basel III measures will begin to be applied from January 2012; however, the key questions expressed at the head of this work remain unalterable.

The way is not increasing the interest rates but a most investment of the banks owners; the financial institutions have big levels of profitability thus, the logic and just is that the money for recapitalization and liquidity augment come from those high benefits of the banks owners and not from the client’s pockets.

The other measure to prevent future financial crisis is a most regulation and supervision of the governments on the financial system, especially on their investments, luxuries and loans.

The financial crisis of the year 2008 demonstrated: a) The weak supervision and control of the governments on the financial system, b) The insufficiency of reserves of capital and liquidity, c) The absolute discretionarily of the bankers for deciding the investments and use of the clients funds and d) The big remunerations of the executives of the broken banks.

The reduction of the public spending and the increase of the bank’s lending spreads is a secure road to recession, unemployment and poverty; the problem is that that is the way selected by the governments to treat the current situation; something simply unbelievable.