The Basel III banking rules are regulators’ third attempt in about two decades to address one of the biggest threats to the global economy: the tendency of financial institutions to go bankrupt during bad times. Among other reforms, the rules require banks to finance their activities with more equity, or capital, as opposed to debt. The equity helps guarantee that the bank’s own shareholders will absorb any losses, instead of turning to taxpayers for bailouts.
Bankers don’t particularly like the new rules. Jamie Dimon, chief executive officer of JPMorgan Chase, has gone so far as to call them “anti-American,” suggesting that the U.S. break with global regulators and go its own way. Dimon is absolutely right, but for the wrong reasons.
