Watering down Basel III's not a sop to the banks

But it is still a hallmark of some worryingly misguided thinking.

The changes to the Basel III international banking regulations have been widely reported as a sop to financiers. But what actually happened?

The Basel regulations are about the stability of the banking system. When the third Basel accord comes into effect this year, it will introduce strict new requirements how leveraged-up banks can be, as well as mandating that they hold enough liquid assets to cover all of their cash outflows for a month. The idea is that by requiring these safety nets, the amount of revenue banks can make is curtailed, but so too is the risk that they will go belly-up in the event of another crisis.

The problem with Basel III is that reducing the amount of leverage a bank is allowed to use is the same as reducing the number of loans it is allowed to make, assuming its available capital stays the same. Reducing the number of loans is sort of what we don't want to happen, what with much of the developed world still being deep in depression and businesses clinging to survival by the skin of their teeth.

In fact, as the NYT's Andrew Ross Sorkin writes, the chances of a leverage induced crisis are quite low.

The change in Basel has been painted, by none-other than Mervyn King, as a trade-off. We thought that the big risk would be another bust; but now we know the big risk is a dead recovery. So lets water down the regulations. King said:

Since we attach great importance to try to make sure that banks can indeed finance a recovery, it does not make sense to impose a requirement on banks that might damage the recovery.

But the problem is, it's not Basel's leverage requirements that have changed. It's the liquidity ones. And they are a lot more important to implement sooner rather than later.

Leverage requirements are important in case we find ourselves in a situation like 2008, where the value of the assets banks are holding drops precipitously. Banks suddenly find themselves much poorer than they thought they were, and a wave of failures sweeps through the system. But we are a long way from the sort of bubble which is required for leverage requirements to be needed. First we need a recovery.

Liquidity requirements, on the other hand, guard against bank runs. And bank runs are a symptom of lack of faith in the system – something which remains very real today. The dilution of Basel now delays the implementation of those requirements, meaning that the risk of bank runs won't be actively fought until 2019; and it also weakens the very requirements themselves, allowing banks to claim a far larger pool of assets as "liquid capital".

Felix Salmon points out that what's really happening is that Basel III has become the latest in unconventional central bank actions:

The committee has clearly determined that if you’ve run out of ammunition in terms of interest rates and quantitative easing, then when you’re searching around for some other monetary-easing tool, regulations are a reasonable place to look. And I really don’t like that precedent. Monetary policy should be entirely separate from bank regulation, even if central banks should properly perform both roles. With the ink barely dry on the Basel III agreement, now is no time to start diluting it for the sake of some hypothetical temporary future marginal boost to growth.

It's important to point out that the actual changes may not be that bad. Alphaville's Lisa Pollack argues that there's a fair amount of whinging which ignores that the weakened regulations are still perfectly perfectly capable of fighting a liquidity crisis. But the principle of the change is still concerning. Regulators decided what would be the best and safest way of running banks, and then changed their mind based, not on new evidence that they could achieve the same safety with less stringent regulations, but on completely different criteria. That bears the hallmarks of the thinking which got us into this problem in the firs place.

A man walks down the banks of the Rhine in Basel, Switzerland. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour must reclaim English patriotism if we are to beat Ukip and the Tories

We can't talk about the future of our country unless we can discuss the past. 

I was a parliamentary candidate for Thurrock, but the place which I currently call home is Hackney, London. This distinction is worth explaining. The questions of Labour and Englishness – what exactly is the English problem that we’re trying to solve, why do we need a progressive patriotism, does it already exist, if not why not and if we had one what would it look like? – are, above all, questions of identity and place. We need to build a patriotism that includes and resonates with residents of both Hackney and Thurrock. Currently they are very far apart. 

I’m the little girl who sat on her dad’s shoulders to wave a flag at Princess Anne’s first wedding. And I was also, like Sadiq Khan, waving a flag at the Silver Jubilee in 1977. I’m an ex-Catholic, I’m a Londoner, I’m English and I’m a woman, and all of those identities are important although not necessarily equally so and not necessarily all of the time.

But I’m also a member of the Labour party, not only as a candidate, but now as an activist in Hackney. And that is where I see the difference very strongly between Hackney and what I experienced in Thurrock. 

Thurrock was Ukip ground zero last year - 12,000 people voted for Ukip in a general election for the first time, on top of the 3,500 that had voted for them before in 2010. Most of those 12,000 people had either not voted before, or had voted Labour. 

This isn’t just about being in two different places. Sometimes it feels like more than being in two different countries, or even like being on two different planets. The reality is that large swathes of Labour’s members and supporters don’t identify as patriotic, fundamentally because patriotism has been seized and colonised by the right. We need to understand that, by allowing them to seize it, we are losing an opportunity to be able to reclaim our past. 

We do not have any legitimacy to talk about the future of our country unless we can talk about our past in a better way. We have tried but our efforts have been half-hearted. Take Ed Miliband's call for One Nation Labour, which ended up amounting to a washed-out Union Jack as a visual for our brand. It could have been so much better – an opportunity for an intellectual rebranding and a seizure of Conservative territory for our own ends. Ultimately One Nation Labour was a slogan and not a project. 

There is a section of the left which has a distinct discomfort with the idea of pride in country. It has swallowed the right-wing myth that England’s successes have all been Conservative ones. This is a lie, but one that has spread very effectively. The left’s willingness to swallow it means that we are still living in a Thatcherite paradigm. It is no wonder progressives revolt at the idea of patriotism, when the right’s ideas of duty and authority quash our ideas of ambitions for equality, opportunity for all and challenging injustice. But we risk denying our successes by allowing the right to define Englishness. It’s England that helped establish the principle of the right to vote, the rule of law, equal suffrage, and the fight against racism. 

If Englishness is going to mean anything in modern England, it needs to be as important for those who feel that perhaps they aren’t English as it is for those who feel that they definitely are. And a place must be reserved for those who, though technically English, don’t see their own story within the Conservative myth of Englishness. 

Although this reclaiming is electorally essential, it is not an electoral gimmick. It is fundamental to who we are. Even if we didn’t need it to win, I would be arguing for it.

We need to make sure that progressive patriotism reclaims the visual language that the Conservatives use to dress up their regressive patriotism. Women need to be as much in the pantheon of the radicals as part of the visual identity of Englishness. Women tend to either be there by birth or by marriage, or we are abstract manifestations of ideals like "justice" or "truth" – as seen on city halls and civic buildings across the country. But English women need to be real, rather than just ideal. Englishness does need to be focused on place and connection, and it should include Mary Wollstonecraft and Sylvia Pankhurst as well as Wat Tyler and Thomas Paine. 

We can’t pretend that we’re always right. The most patriotic thing you can do is to admit sometimes that you’re wrong, so that your country can be better. I love my country, for all its faults. But I do not live with them. I try to make my country better. That is progressive patriotism. And I know all of us who want to be part of this can be part of it. 

This article is based on Polly’s contribution to Who Speaks to England? Labour’s English challenge, a new book published today by the Fabian Society and the Centre for English Identity and Politics at the University of Winchester.