Once upon a time, following Lehman Brothers’ collapse, policymakers from the G20 sang from the same hymn sheet. They argued that higher capital requirements, realistic risk weighting of banks’ assets and a degree of harmonization of global capital standards were all needed to avert another financial Armageddon and regulatory arbitrage.
In the wake of Lehman, global policymakers touted their consensus-building skills in their bullish bid to reshape international banking, with stronger as well as harmonized capital and liquidity standards. The then French president, Nicolas Sarkozy, articulated the grand mission in a speech to the UN in 2008: "Let us rebuild together a regulated capitalism in which whole swathes of financial activity are not left to the sole judgment of market operators."
In September 2010, a cosy regulatory consensus was seemingly cemented with the unveiling of the Basle III framework, the third global regulatory effort in around two decades to prevent another systemic financial crisis. With this framework, G20 policymakers formally agreed international benchmarks, some loosely defined, others less so, including the composition and definition of banks’ capital, liquidity and counterparty credit risk, counter-cyclical buffers to enhanced supervisory measures and sanctions for noncompliance.
That month, US Treasury secretary Tim Geithner’s comments on the Basle accord summed up the regulatory zeitgeist and the US’s newfound multilateral spirit.