From a U.S. perspective, the Basel II Accords can also be interpreted as a triumph of globalization over domestic politics. Following on the heels of the U.S. savings and loan
meltdown and subsequent bailout
, the Federal Reserve would have preferred to more aggressively regulate American banks. However, this proved to be an incredibly difficult endeavor, as it would have required the support of Congress
- and since the Basel Accords are most definitely not in any particular bank's short-term interest (particularly if that bank is likely to run afoul of the regulators), there was little hope of getting the heavily-subsidized Congressional delegations to write and pass comprehensive banking reform legislation.
However, since the Basel Accords are an international agreement, entering into their provisions is a matter for the Executive branch and the State Department, not the industry-captured Congress. As a result, the United States approached its traditional fiscal partner, the central bank of the U.K., and proposed the new banking regime. The Bank of England agreed in principle, but had their own concerns - namely, that the U.K., whose currency and hence banking was not fully integrated into the European Union, would suffer from the availability of cheap money from mainland European banks. The BoE agreed to the plan if the European banks (Germany, especially) could be included, since signing would preclude them from making inflationary capital available within the U.K. at low rates, which the U.K. couldn't otherwise legally preclude. The capital reserve requirements of Basel II would ensure that.
Once that was settled, the next problem was that the European banks wanted the Pacific Rim banks (Japan in particular) brought on board. If the European banks were unable to provide paper at the low reserve ratios they had come to enjoy, the Japanese banks with their traditional easy availability of government capital through extremely low central bank rates would be able to simply take over the credit markets the European banks were servicing, either directly or through the new and burgeoning area of interest rate swaps and other synthetic financial products. And thus the Basel II accords swept eastwards.
Looked at with this particular jaundiced eye, Basel II can be seen as a domestic American banking regulatory end-run that went a bit mad.