Reshaping Bank Behavior

The new rules would make banks roughly double the amount of capital set aside as a buffer against possible losses, slash stockholder dividends and executive pay if that stockpile falls short, and limit lending during economic boom times. Combined, those measures are intended to shape the behavior of bank managers and investors in unexplored ways - trying, for example, to have them curb lending in good times in the hope that asset bubbles won't give way to a costly bust.
 
The standards could have broad implications for the amount and cost of credit available around the world, as banks adjust their balance sheets and business plans to comply. Banks will have two years to meet the basic requirements proposed by the committee, though some of its provisions will not be implemented for up to eight years.
 
Global regulators traditionally move slowly, but the Basel III rules on capital standards for banks were reached relatively quickly. The success of the rules, however, will depend largely on implementation over an eight-year, phase-in period.

You can certainly get your fill of rhetoric and analysis of all the ‘official’ details in any international mainstream news publication that you choose to read today, but many finance ministers are still speaking as though their national economies can perform well with just minor adjustment to old patterns.
 
This may not be so, particularly in the West, where the rapid growth in state revenues since the end of the Cold War pushed governments down the path of highly capital-intensive programs in areas which absolutely do not contribute to national productivity in essential manufactures or primary industry, and in many cases actually constrain productivity rises.

We are about to see an acceleration of social reaction to economic failure - a reaction to the inflexibility of policies which have failed to adjust to changing circumstances.
 
In countries such as Greece, France, Spain, Portugal and so on (and now the US, UK, Australia, etc), those in the private sector who have come to rely on state handouts - and therefore become ‘agents’ for statism, and by default are opposed to market freedom - compound the entrenched political class' view that the state should not undergo the kind of profound self-analysis and restructuring which must be embraced by the private sector.
 
These are just a few examples of states undergoing per capita productivity declines at a time when they should be developing a strategic buffer of internally-balanced economies and the ability to better compete internationally. And there is a fear that if wasteful government spending on huge capital projects ceases, then economies will collapse.
 
This fearful, selfish, and ignorant intellectual process within governments has been caused by the hubris generated by unfettered control of great wealth, and the presses which print the money. But governments only have the ability, in real terms, to dominate the non-productive -- or, at best, productivity-enabling infrastructure -- spending. Only by returning spending power to the innovative sections of society (in other words, the people) can economies become nimble and productive.
 
This is unlikely to happen, so we should expect sudden contractions in buying power in many western states over the coming few years.
 
We are also already witnessing the contraction of some aspects of multinational mechanisms to amass and deploy capital wherever the market determines it can profitably be invested. Part of this contraction derives from the situation in which the world is entering a period where it may soon be without a viable global reserve currency. This in turn leads to the point where trade becomes more bilateral; investment scope becomes limited in some respects; and nationalism - and with it, protectionism - revives out of economic necessity.