Basel Move Makes the Case for ‘Gold-Plating’ Capital Standards
By John Heltman
WASHINGTON — It’s beginning to look like the rest of the world may follow the U.S.’ lead when it comes to tougher capital standards. An international regulatory body said this week that they are looking at setting new, enhanced leverage ratio requirements for the largest global banks, a move that echoes the higher standards in the U.S.’ supplemental leverage ratio and demonstrates why going beyond international accords can influence the rest of the world. Wall Street critics say it illustrates their longstanding claims that “gold-plating” — that is, setting regulatory standards that exceed international standards — can help influence other countries to agree to stronger standards…. But Karen Shaw Petrou, managing principal of Federal Financial Analytics, said that the U.S. was not alone in pushing for tighter capital rules on G-SIBs — it is joined by other regulatory hawks in the FSB, including the U.K., Sweden and Switzerland, who have also staked out more stringent rules than what the Basel committee suggests. “In this instance I wouldn’t put it down solely to the U.S., but certainly the U.S. was a very important voice in favor of the leverage requirement,” Petrou said. “Could the U.S. have done this on its own? I don’t know. It certainly would have been harder.”…But the regulatory hawks are not always a prevailing force on the Basel Committee or any other international deliberative body, Petrou said. In addition to the leverage ratio, the GHOS statement said that it was going to re-propose an initiative to set floors for internal credit risk models, a move that Petrou said was a “significant concession” to the regulatory doves on the committee. “It’s a balanced package in which the capital hawks won some, the capital doves won some,” Petrou said. “The doves clearly, in my opinion, won off on the floors.”