In my columns of April, July, August and September 2011, I warned that the international push to implement Basel III, which mandates increases in bank capitalasset ratios, is a deadly cocktail to ingest in the middle of an economic slump.
The global sovereign debt crises, and the Greek fiscal crisis, are bad enough on their own. Basel III is just making things worse. If I may summarize past arguments, under the purview of Basel III, banks in the United States, as well as those in the eurozone are shrinking their risk assets relative to their equity capital. The accompanying chart clearly shows the picture in terms of the banks' assets. Risk assets in the United States have all declined since May 2008, while banks' holdings of "riskfree" government securities and cash have soared.
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