I will think tomorrow. The political and financial world now faces dramas like Rossella O'Hara: “when a problem becomes too complicated we prefer to postpone it. Unfortunately, however, 'tomorrow' that problem will arise again. However, Obama will have to find a solution within two months to avoid the Fiscal Cliff and the banks will still have to start on more solid tracks. However, I appreciate one aspect of the decision taken on Sunday by the governors of the central banks and that is the fact that resources are effectively freed up for companies”. The economist Giacomo Vaciago criticizes the decision to lengthen the time for the application of Basel 3, but positively underlines “the fact that the additional liquidity can also include shares and mortgage backed secutirities, securities guaranteed by mortgage loans, previously excluded. This creates the conditions for banks to be able to finance businesses or the recovery, if this comes".
FIRSTonline – Professor Vaciago banks will have more time to build up their liquidity reserves, given that the Basel committee on banking supervision has approved the revision of the standards by introducing a multi-echelon mechanism. How do you judge this decision?
Vaciago – Undoubtedly we find ourselves in a situation where excessive rigor can kill the seeds of an economic awakening and we must take this into account. However, I would like to make a broader discussion. We have known for five years that this global economic and financial crisis also depends on the banks. Up to a certain point they have risked a lot with respect to their capitalization. A choice that is fine in heaven, but not on earth, where so many sinners live. Then it will be good to put some firm points. First: risky banking requires more capital, otherwise it ends badly and we have seen it. Second: it is better to redefine what a bank is and what it has to do. Where have the banks put their money in recent years? In businesses? In the manufacturing and wealth-creating industry for society? No, they mainly carried out operations on the financial markets and the damage arose from there.
FIRSTonline – Defining what a bank is: a demanding operation…
Vaciago – Undoubtedly, but we are in good company to support it. Paul Volcker says that banks should be of two types: commercial ones and those that do investment business. In 1933 the Americans introduced the Glass-Steagall Act to get out of the crisis of '29, that is, they did just that. John Vickers two years ago proposed to British banks to separate their risky business from that of financing households and businesses. As can be seen, the redefinition of banking activity is a crucial point. Because the banks can do what they want, they can bet their money in the casino, but they can't endanger the system, they can't consume the resources to be allocated to the economy. Even the EU has faced this problem and the Liikanen report has proposed solutions similar to those mentioned.
FIRSTonline – It's a path that needs stages and, in this context, how does Basel 3 fit in?
Vaciago – Yes, we need an agenda of things to do, to quote Monti. As far as we are concerned, we need to proceed along the path of European banking union. But we also come to Basel, where the governors of 30 countries meet. It's time to ask ourselves the question of how assets are valued and the weight that rating agencies have in this evaluation. Do we want to admit or not that the beatification of the rating agencies also contributed to the crisis? The weight of their judgment on each evaluation?
Finally, let's talk about Basel 3, which is the result of the failure of Basel 2, precisely because the weight of the opinions of the agencies has led to the devaluation of the securities and the tightening of conditions. Today the time has come to apply new criteria, which are very expensive from the first year of introduction. What would have happened if we had been strict? Strict application risked crushing an already very weak system, since bloodletting is not a cure for the sick. So we have chosen the most popular path at the moment: we have postponed. Oh yeah, dealing with deep solutions is hard. Think of the single supervision of European banks by the ECB and the resistance of Germany. And what does the United States do? Do they find structural solutions? No, they do transfusions. They inject liquidity and if one day the expected liquidity doesn't arrive, the market crashes again. In fact, even liquidity is not enough, because you can put out the fire with all the water in the world so as not to burn, but then you risk drowning. In short, the whole system continues to patch up the cracks in the house with duct tape, but it can't hold up for long. It takes the courage to roll up your sleeves and restore the foundations. Otherwise, in two months or three years, if the structure is still standing, the cracks will still be there and perhaps even deeper.
FIRSTonline – Did we just take time or is there something good too, as you said?
Vaciago – There is also something very positive in this decision to lengthen the application times of Basel 3. The choice, as it has been designed, should free up resources for the economy and this is the only oxygen we need . So, criticisms aside, I think we should appreciate the effort being made to get us out of the stagnation in which we are floating.
