Guest post. Translated from the French by Tim Gupwell.
In the blink of an eye, discussions have switched focus. The issue of growth which was at the forefront has rapidly surrendered its place to the elaboration of a plan for the supervision of the banks and the rescue of those in need. Improvisation continues to be a dominating force, with what was denied yesterday becoming a priority today.
The sheer size of the reported losses in the Spanish banking system and the capital withdrawals out of struggling countries have forcibly imposed this return to a theme which had been set aside. The global fragility of a highly interconnected system has been highlighted to such an extent that, in order to show the potential scale of it, the risk of a new European ‘Lehman Brothers’ scenario has been evoked. A new aspect, the chronic under-funding of the system, which had for a long time been denied and described in a relatively harmless and indulgent manner as a ‘liquidity crisis’, has now been fully recognized, at least for those cases which can no longer kept out of the public eye.
The reinforcement of minimum capital requirements by the European Banking Authority (EBA) – already considered insufficient even before they have been put into practice by all the banks concerned (clear to see from the example of the Spanish banks) – has been a belated first sign of the realization of this necessity. Meanwhile, while all this has been going on, the banking lobbies have been doing their utmost to hide the reality, seeking to modify the Basel III capital proposals in ways that benefit them, and to drag out the work on accounting norms by the International Accounting Standards Board (IASB). But all this is no longer enough.