Basel 3 | What are the advantages and disadvantages
Two days ago the Basel agreement was reached among central bankers on the common definition of bank debt to overcome national differences. The agreement on the criteria for debt management of the banks has the double objective to strengthen the supervision system and supervision on credit. Mario Draghi, who led the meeting of the governors, said that the agreement is a guarantee instrument that will make the European banks more resilient to financial shocks and stronger despite the debts. They will in fact conduct a series of tests on the balance sheets of banks and their ability to resist any new financial stress.
Under the terms of the Basel 3, the first line of defense must be guaranteed by the banks themselves, only as a last resort, central banks should intervene. Exceptions may be granted to some countries to provide liquidity operations, albeit with very strict stakes. With the tools now defined between central bankers and managers, banking supervision should not happen again. In the past the crash that followed the financial crisis triggered in the United States between 2008 and 2009 which necessitated the intervention of sovereign states and the consequent worsening of public debt in the Eurozone, should not happen again.
While the new rules are an important step for the European Banking Union, it is also true that the more stringent requirement for banks is likely to accentuate the tendency to move towards a new “credit crunch”, in a period in which the denial of loans to businesses and households is a serious problem for the economy. The ECB has made it clear some time ago that it will not be repeated placing of liquidity to banks to use the funds received in the real economy. The same Draghi has admitted in a press conference last Thursday in Frankfurt that in the short term we will see a further credit crunch, but towards the end of 2014 our banking system will be much more healthy and strong.