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Basel III vs. Brown-Vitter

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Part of the appeal of the Brown-Vitter capital requirements proposal is its sheer simplicity, as reflected by the bill's brevity. It was proposed at just 24 pages, compared with roughly 2,300 pages for early versions of Dodd-Frank and 66 pages for Sarbanes-Oxley.

Some have called the bill the antithesis of Dodd-Frank, which the authors take as a compliment. But the real antithesis may be Basel III, which is known for its complexity.

Under Brown-Vitter, the largest banks would have to hold a whopping 15 percent of assets as equity, which compares with 7 percent under Basel III, including a 2.5 percent capital conservation buffer. What's more, the Brown-Vitter bill does away with some of the ornate definitions and risk weighing built into Basel III.

Indeed, as Bloomberg Businessweek points out, the bill basically requires that U.S. agencies be prohibited from "further implementation of any rules" that come out of Basel. One of the authors was quoted saying, "We think Basel II and Basel III are hopelessly complicated. And risk weighting, it's too easy to be gamed, certainly the versions I've seen."

This will likely strain already delicate U.S. relationships with other regulators, especially in Europe, which is also struggling to form new regulatory paradigms for the post-crisis industry. We're seeing lots of spats break out, over such things as subsidiarization, ring-fencing and swap rules. At this point, it's tempting to interpret this regulatory fragmentation as a sign that regulators are having trouble keeping up with the pace of globalization.     

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