Betrayed by Basel

By SIMON JOHNSON, NY Times

Simon Johnson is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The fundamental assumption of modern bank regulation is that nations need to coordinate, and they negotiate the relevant international standards in the Swiss city of Basel, home to the Bank for International Settlements, under whose auspices such negotiations are held. The United States has an important seat at the table, but so do the Europeans and others. These negotiations are shaped by three main forces: the United States, Britain and the euro zone, with Japan often siding with the euro zone. (It’s one country, one vote, so this can easily go against the United States.)

This week the Basel Committee on Banking Supervision, as it is known, let us down – once again. Faced with renewed pressure from the international banking lobby, these officials caved in, as they did so many times in the period leading to the crisis of 2007-8. As a result, our financial system took a major step toward becoming more dangerous. (A visual representation of the Basel Committee’s centrality to all key regulatory matters is clear on this organizational chart, as well as in its charter.)

Keep reading: Simon Johnson: Betrayed by Basel – NYTimes.com.