BIS strategy to address banking crisis – anything new?

 In a press release Basel Committee on Bank Supervision says it plans to issue a comprehensive strategy plan to address the banking crises. The objective:

to address the fundamental weaknesses revealed by the financial market crisis related to the regulation, supervision and risk management of internationally-active banks

The so called building blocks of strategy are:

strengthening the risk capture of the Basel II framework (in particular for trading book and off-balance sheet exposures);

enhancing the quality of Tier 1 capital;

building additional shock absorbers into the capital framework that can be drawn upon during periods of stress and dampen procyclicality;

evaluating the need to supplement risk-based measures with simple gross measures of exposure in both prudential and risk management frameworks to help contain leverage in the banking system;

strengthening supervisory frameworks to assess funding liquidity at cross-border banks;

leveraging Basel II to strengthen risk management and governance practices at banks;

strengthening counterparty credit risk capital, risk management and disclosure at banks; and

promoting globally coordinated supervisory follow-up exercises to ensure implementation of supervisory and industry sound principles.

In all, pretty much the same thing applicable to all banking crisis.  The same guidelines apply to banks all the time irrespective whether there is a crisis or not.

I would suggest more crucial is to understand why weren’t these basics of banking/finance applied? Why did banks take the kind of risks they did? What was risk management doing when traders/loan-makers were taking risks?  Where did corporate governance, business ethics go? It doesn’t help in any learning.

After understanding the actual practices from the assumed only we can make some progress on designing appropriate policies. There is no point restating things which have been well-known and are obvious.