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New capital rules: Get the timing right too

Agreement of new capital rules can’t come soon enough but speedy imposition of them might be dangerous for banks and the global economy.

It’s important for the world financial system that the uncertainty around the future scheme of regulation be resolved quickly. That means in the next few weeks or months.

The debate about appropriate capital levels and accounting rules for the banks, and over which bodies should regulate and supervise them and how, both individually and as a system, has been all over the place.

Much more crucial aspects remain to be settled than setting caps on bankers’ pay. Private suppliers of capital to the banking system will insist on an economic return that, even if lower than in the past, must be less volatile and more dependable. If investors are not able to see this governments will remain large holders of the capital of the banking system for a long time to come.

Given the importance of an efficient money transfer mechanism to the health of an economy, surely no one wants that.

If a new social contract is to be drawn up for banks, what is the proposition to customers as well as to shareholders? It might be acceptable if buttressing the system adds one percentage point to mortgage costs and brings monthly fees for maintaining basic bank accounts comparable to what consumers now pay for their mobile phones and cable TV.

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