Bonds and... bondage

When I lived in New York City – for most of my 20s – I remember a Thai dinner with a university friend who moaned about the demise of her most recent relationship. Her complaint, oddly enough, was not that her boyfriend had cheated on her. She was relatively relaxed about this – in previous relationships she hadn't exactly been a saint herself.

She was irritated that she had gone out of her way to be faithful with this particular beau. If she'd only known he was seeing other people, she could have seen other people too, she said. And they could have stayed together. But keeping the relationship open only on his side, and not telling her, that was unforgivable.

I could, after a fashion, see her point. It was the 'not knowing' that was the betrayal.

And so, I come to both Basel II and the fight against money laundering.

First, I don't think the Basel Committee on Banking Supervision has done anyone any favours by spinning the results of QIS5 in such a way that they are meant to look 'better' than those of the US-based QIS4, with its wonky capital drops. I wanted to applaud when John Dugan, head of the Office of the Comptroller of the Currency, pointed out that the results of the two studies are more similar than different. This was plain speaking.

If QIS5 shows large, uncomfortable capital drops, then darn it, the world's regulators should be telling us about it, and openly debating what to do about it.

Because, in fact, we're all going to be a bit irritated if, at the end of the next economic cycle, we encounter a global systemic banking crisis because Basel II didn't require enough capital, but it was allowed to go through because regulators were more focused on keeping the international 'feel-good' factor around Basel II going.

Or, as my Pad Thai-munching friend put it, "if he'd only told me, we could have talked about it...".

And then there is the fight against money laundering. Since 2001, banks around the world have been engaged in the equivalent of one-sided marriage counselling, with law enforcement and the regulators splitting the role of abusive partner between them. "File SARs!" they command, and the banks file away. "Watch those embassies", they shout, and the banks close embassy accounts. But what are the banks getting in return?

Nothing.

Indeed, law enforcement and regulators are keeping all the decent information – who the criminals are, what their latest scams are – to themselves.

It seems to me that a bit of transparency would be healthy for this relationship too. Let the banks in on criminal information... you never know, they might just enjoy dressing up in uniform and playing with a pair of handcuffs...