Basel alone can’t stop next crisis or foolish behaviour
MOVES to reform the i nternational f i nancial system can’t stop b a n k s f r o m t a k i n g silly risks and won’t guarantee that a financial crisis wouldn’t happen again, the Reserve Bank of Australia says.
RBA Assistant governor ( financial system) Malcolm Edey says the Basel III reforms – a new set of international standards for banks – need to be coupled with responsible behaviour, to avoid a repeat of the global financial crisis.
‘‘ There’s also more to financial stability than just having good regulations,’’ Mr Edey said yesterday.
‘‘ The best possible set of regulations won’t, on its own, stop the next crisis, for the simple reason that every crisis is different, people innovate around
Edey regulations, and you can’t against foolish behaviour.
‘‘ We need bankers and investors who don’t take silly risks, supervisors who are prepared to ask tough questions and step in when they see excess, and good-quality implementation of the rules that we already have.’’
Mr Edey noted that Australia had been well served by its prudential regulator on that front.
‘‘ But it would be a shame if, in the international debate, those basics got lost in all the focus on re-writing the rules.’’
One of the proposals for the Basel committee is to address the lack of liquidity many banks faced during the worst of the financial crisis.
One of the Basel III proposals is to introduce a standard for liquidity risk that aims to ensure that banks have sufficient high quality liquid assets such as government bonds.