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How is Basel III going over so far?

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BILL RADKE: What do you think of when I say “Basel?” A cantankerous B&B proprietor in a British comedy? That’s a good answer, but if you said “Basel III” is a new set of international banking rules, I’m really impressed. My old friend David Brancaccio has been studying Basel III as part of a new beat on Marketplace called “Economy 4.0” about the quest for a better financial system. David, welcome.

DAVID BRANCACCIO: Glad to be here.

RADKE: So I know that world leaders are set to ratify the new Basel banking rules later this fall. I also know that bank rules are deathly boring, correct?

BRANCACCIO: Au contraire. Actually, there’s a fascinating paradox for those of us who are not bankers for a living. On the one hand, Basel might avert the need for another bank bailout, always nice. Yet the rules encourage stability by making banks hold on to more of their capital, which some worry could make them less likely to lend money to you and me.

RADKE: How do these new rules work?

BRANCACCIO: It’s a way to force banks to have a thicker mattress stuffed with cash and other easy-to-access capital. Now it’s not good enough to have assets. They have to be more of the kind a bank can quickly use if a bunch of creditors show up wanting their money.

RADKE: And how are those rules going over so far?

BRANCACCIO: Well I spoke with a bunch of experts about this — the great and the good. But some of the most useful wisdom was from a small businessman. Kelly Conklin runs a cabinet-making company in Jersey. These Basel folks adjusting capital reserves is all well and good, he says, but what about times like now when lending is frustratingly tight?

KELLY CONKILIN: But I think we have to go back and think about the way banks think. They’re going to have to go change the way they think as well. They can’t just adjust it mechanically. They’re going to have to adjust it somewhat philosophically. They’re going to have to have the flexibility of mind at the bottom to see that the way out of the bottom is to make this credit available. It’s not so much about reserves, per se, as it is about how you use those reserves.

In the U.S., the Federal Reserve controls this so maybe flexibility will come that way.

RADKE: David, I want to know why you care so much about this stuff.

BRANCACCIO: Well this new Marketplace “Economy 4.0” beat is about tracking efforts to re-engineer the financial system and to look at whether or not it can be made to better serve more people, like for instance Mr. Conklin who we just heard from. Some say Basel is the biggest international response to how the banking system can be fixed and I think we should monitor these new rules of the road.

RADKE: We’ll be monitoring this together. Marketplace’s special correspondent David Brancaccio, thank you.

BRANCACCIO: My pleasure.

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