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Financial Re-Regulation

Basel III’s Unfulfillable Promises

Courtesy Reuters

By the time the presidents and prime ministers of the G-20 countries gather in November for summit talks in Seoul, the world’s banking regulators will have developed an entire package of new global banking standards for their enthusiastic approval. The regulators are already on a roll: on September 12, they approved tougher capital requirements to prevent future financial crises, and on September 22, they discussed passing even harsher regulations for the biggest banks. But the extent to which this so-called Basel III accord will make the world economy safer is far from clear. As I argued in the May/June 2010 issue of Foreign Affairs, the stability of the financial system depends not on such high-profile international agreements but on decisions taken and enforced at the national level once the spotlight is turned off. Indeed, the real work still lies ahead.

Basel III, developed by the Committee on Banking Supervision -- a

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