Easing of Rules for Banks Acknowledges Reality

“If Basel had been implemented this year as written, it almost certainly would have thrown the U.S. and other economies into a recession more than going over the fiscal cliff ever would have,” John Berlau of the Competitive Enterprise Institute, a research organization promoting free markets, wrote. Mr. Berlau, who may have a penchant for hyperbole, had been calling the deadline the Basel cliff. He added, “Basel III has been delayed, and for Main Street growth and financial stability, that is all to the good.”

Mr. Berlau is right. In truth, the reason that regulators ultimately chose to relax the rules was simple practicality: many banks in Europe and some in the United States would have never been able to meet the requirements without significantly reducing the amount of credit they were to extend to Main Street over the next two years, according to people involved in the Basel decision process.