It is a matter of fact that regulation in Europe is overly conduct-of-business oriented. Therefore, to me as well, regulations related to required capital is a must, especially in UK.

However, what should be emphasized are the regulations that should be directed to pillar II of Basel II, namely the internal control processses and overreliance of CRAs, i.e. regulations related to the asset management sides of BSs.

In addition, any regulatory attempt in EU without simultaneous and synchronized changes in US regulatory structure will not lead to desired stability objectives.

Finally, as long as the so-called developed countries lack the political leadership both on international arena (that can be easily seen observing G20 summits and recent crisis in the EU) and in their national markets such regulations, cannot be put into action.

Although the effect on Europe’s banks is significant, the implementation of Basel 3 is necessary to mitigate risk. I do agree that it will reduce liquidity once it is implemented. However, to limit any further impact of the recent recession and to prevent a similar event in the future, investors will have to settle for a lower return, for now. If management of these banks had been more responsible in the manner they operated their businesses the recession would not have been as severe and new capital adequacy requirements may not have been necessary. Banks in developed countries should look to their counterparts in emerging markets as examples.

Such an adverse impact on ROE might tempt banks to focus on high return product segments for survival and growth, and in-turn increasing the portfolio risks. It’s a vicious cycle and the right levels of checks and controls cannot be aped for all markets. Basel III might be difficult to the extent of being unfair on banks based out of Europe but with primary operations in developing economies.

Some EU banks do not want to be fully accountable for the capital requirements of subsidiaries, when other shareholders have a large minority stake. Yet, they should be, since when push comes to shove the majority shareholder is ultimately going to be liable for losses at the subsidiary.

The point of Basel III is that it’s meant to be robust and in a way ‘forceful’; these new rules are turning Basel III very complex and difficult to interpret and apply.