Saturday, June 14, 2014

The Basel Accords Demystified - Massive Regulatory Failures - Unelected, Unaccountable International Bankers Impose an Immense and Unnecessary Burden - Reform Money and Finance for the Good of All


BASEL I, II & III on an unsuspecting world

Central bankers’ Basel III scheme will worsen worldwide recession

BASEL I. In 1988, a faceless, unelected group of bankers met in Basel, Switzerland at the Bank for International Settlements (“BIS”) – the “central bankers’ bank” which even Swiss authorities may not enter – and in their “Basel I Accord” agreed to a set of minimum capital requirements (8%) for banks. This was a number fine for some banks, but higher than what was in place for French and especially Japanese banks. To raise more capital to reach the 8% level, French and Japanese banks had to reduce loans, causing a recession in France and a depression in Japan, one from which Japan has never fully recovered.

BASEL II. In 2004, the same group met and agreed to Basel II (“The Return of Basel I”) – which required banks to value their capital based on market values, or “mark-to-market”. These rules were approved for the US on November 1, 2007. The declining housing market set off a chain reaction due in part to Basel II, which banks knew was coming and constricted credit in anticipation of. The next month, December 2007, the stock market collapsed and the Great Recession began in earnest. This should have been no surprise to the Japanese, nor to the BIS bankers. Full implementation of Basel II was subsequently delayed in the US until 2009. Basel II has been blamed for actually increasing the effect of the housing crisis, as banks had to reduce lending to increase their capital as the value of mortgages they held declined. This produced a downhill snowball effect on home prices, and then on nearly everything else as lending and the economy contracted.

BASEL III. Not content with two massive regulatory failures, the same bankers have now produced Basel III (“The Revenge of Basel I & II”). Like Basel I & II, Basel III increases capital requirements yet again, in a series of steps beginning in 2013 with the start of the gradual phasing-in of the higher minimum capital requirements, not completed until 2018. The BIS bankers have imposed this and are forcing their home governments to get in line – as have the UK, the US, and most other developed nations. It is truly a global rule by central bankers acting in concert/cabal.

An OECD study estimates that the medium-term harmful impact of Basel III implementation on GDP growth is in the range of –0.05% to –0.15% per year – just what’s needed in a worldwide recession! To meet the capital requirements effective in 2015, banks are estimated to need to increase their lending spreads on average by about .15%. The capital requirements effective as of 2019 could increase bank lending spreads by about .5%. Rising interest rates could significantly hurt small bank capital positions, because a 3% upward swing in interest rates could drop a bank’s capital by 30%, placing the bank in an undercapitalized position, forcing it to dramatically reduce loans – again, the downhill snowball effect.

The proposed Basel III regulatory capital requirements are an immense and unnecessary burden that will actually threaten the existence of banks having under $1 billion in assets. These new regulations will further drive consolidation into a few bigger banks. Some on Wall Street, like mergers and acquisitions expert John Slater, predict that Basel III’s compliance costs will lead to a merger boom, and that in the next 3-5 years, 20-30 percent of all banks will merge, further consolidating wealth in fewer and fewer hands. That is the object: world bank/economic and hence political control by a handful of unelected, unaccountable, international bankers beholden to no one, many of whom have ethics only Machiavelli could admire and world views that most people on earth would consider abhorrent.  source

Dick Eastman writes:

The Basel Accords (I, II, and III) have brought nothing but more deflation and depression, by raising the reserve requirement of banks. Their only purpose in doing that was to add to unelected central bankers' wealth, at the expense of the world's debtors.

Banks can lend a high fraction of what people have deposited in the bank. The fraction that they must keep and not lend is their required reserve.

If the reserve requirement is 10 per cent of the loan amount, then if someone deposits $1,000 in the bank, the bank will be able to lend 9/10ths of that ($900), and must keep the rest ($100) in reserve. 

The money that we use to pay employees, to go shopping, to pay rent, taxes, and mortgages, is paid with checks. Checks transfer deposits that were created by banks' lending.

Money that people use to hire one another and buy from one another is money loaned by banks. How much money that is, depends on how much money is deposited in the banks, and on what the reserve requirement is – whether 1/10th of the loan amount, or some other fraction.

Basel Accords are an agreement among bankers internationally – the big banks get together, the small ones are not invited – to raise the reserve requirement from what it is now (say, holding reserves equal to 1/10th of loans outstanding) to a higher reserve requirement (say, 2/10ths or 1/5th of loans outstanding).

What this means is that banks have to cut their lending and call in loans, because getting away with having reserve money equal to just 1/10th of loans is no longer acceptable. To back the loans that were backed by the 1/10th requirement, now requires twice as much in reserves: so the banks must contract (reduce) their loans to meet the new requirement. If a bank had $10 million in loans outstanding, and one tenth of that amount ($1 million) "backing" the loans, but now $2 million of reserves is required to make the $10 million in loans legal, then the bank must call in another $1 million in loans. 

And that will cause further contraction due to the money multiplier effect. This means that the $1 million in loans called in, was itself acting as reserves in other banks: so loans will fall by even more than $1 million. Fractional reserve banking multiplies deposits by more than just the amount of new deposits. It also contracts the money supply by more than just the amount of the retirement of a loan. This is hard to explain, so let's just jump to the result.

Starting with a reserve requirement of 1/10 for loans of $10 million, when you increase the reserve requirement from 1/10th to 2/10ths (that is, from a 10% reserve requirement to a 20% reserve requirement), the amount of loans the banking system can have drops from $10 million to $5 million.

The Basel Accords raise reserve requirements – which means a fall in loans outstanding.

And guess what? Only the rich big banks have lots of idle cash to meet the new requirement and keep their loans outstanding.

The little banks will have to cut good loans to good businesses – because of the new Basel law imposed on the US economy.

Guess which banks will get the assets of those borrowers who were forced to liquidate because of the loan call? The big banks will, of course.

The end result is that the small banks fail, the bigger banks grow, there is less lending and more deflation and depression all around. 

Further reading:

Everything the citizen must know to reform money and finance for the good of all (Dick Eastman)

Global Banking: The Bank for International Settlements (Patrick Wood)


  1. This article is being nice to them. Things are way worse than that. What about the 'leveraging' they do and pull money from thin air, loaned out at interest, paid back with real dollars that represent actual work? How they loan out way more than they ever have/had in the first place? That is what 'Fractional Reserve Banking' is about. Loaning out something that does not exist and get paid back with something that does.

  2. This comment has been removed by a blog administrator.

  3. Thanks for sharing your views - enjoyed reading your post. Please visit my page no win no fee and give me your views please.


Who's visiting Abel Danger
view a larger version of the map below at