Lobbyists for the American banking industry will presumably be congratulating themselves on a hard game well won this week. Michael Barr, the Federal Reserve’s vice-chair for supervision, admitted that the consultation process on new capital rules known as the “Basel Endgame” had been a “lesson in humility”. Industry commentators identified the revisions made as a “capitulation” to a campaign which had included ads in the middle of the American football games
On the face of it, they are right to do so. In the past, the US authorities have tended to take a two-tier approach to the global standards emanating from Bank for International Settlements in Basel, implementing them in a gold-plated fashion for the very largest dozen or so banks but leaving the majority of their system completely untouched. This allowed the Fed to claim it was among the world’s toughest regulators, while avoiding too much complaint from the powerful domestic savings bank lobby. This strategy seems to have been abandoned.
Global regulators will certainly notice that the US has started a race to the bottom — the Bank of England’s announcement of its own endgame proposals already makes several references to “international competitiveness” and “other jurisdictions”.