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Fed Official Seeks Radical Change in Bank Regulation 

May 12, 2014
Peter Coy, Businessweek

The Swiss city of Basel is to central bankers what the Vatican is to Roman Catholics. But that didn’t stop Federal Reserve Governor Daniel Tarullo from slamming the Basel approach to bank regulation in a speech today in Chicago. According to prepared remarks released by the Fed, Tarullo said the standard designed by the Basel Committee on Banking Supervision creates “manifold risks of gaming, mistake, and monitoring difficulty.” The Basel standard, he said, “contributes little to market understanding of large banks’ balance sheets and thus fails to strengthen market discipline.” He even said its “relatively short, backward-looking basis for generating risk weights makes the resulting capital standards likely to be excessively pro-cyclical and insufficiently sensitive to tail risk.”

To be sure, his damnation of Basel wasn’t complete. He never said it caused high blood pressure or coastal erosion. But he did say that the Basel “approach—for all its complexity and expense—does not do a very good job of advancing the financial stability and macroprudential aims of prudential regulation.” 

Read more: Businessweek

 
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