By Dimitris N. Chorafas (auth.)
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Additional info for Basel III, the Devil and Global Banking
Another novel financial process crying out for prudential regulation but untouched by Basel III is high frequency trading (HFT). This is an altogether different ballgame than the SPVs, capitalizing on high technology. Its risk comes from the fact that some technological advances in the financial markets can have unwanted consequences. What HFT offers is a number of conceivable advantages for the markets’ efficiency, including greater liquidity and narrower bid-offer spreads. There is also a downside, where such things as data input errors, technical glitches and malfunctions are found.
15 But nothing reportedly caused HSBC’s management to change its relationship with Madoff, whom it continued to serve as custodian for multiple feeder firms until his arrest in 2008. The lesson for the Basel Committee is that, if Basel III does not include rules for disciplinary action in such cases of oversight and business as usual, it will be no more than a paper tiger, and its wider adoption will change nothing about the way that banks are run. Nor has this been an isolated case. The trustee charged UBS with a similar inactivity connected to feeder funds (which must also come under Basel III regulations).
Crises derail the perpetual motion financial machine, and compromise the banks’ independence. Even worse is the fact such intervention is largely made necessary by greatly increasing the sovereign debt. ‘The perpetuum mobile will come to a standstill when the state creates money in excess,’ says Heinrich Steinmann, pointing to the cash generated by the sovereigns via their central bank. ’ ‘Scaling up risks may cause them to cascade rather than cancel out. The bigger and more complex the structure, the greater this risk … Because size and complexity increase the chances of cross-contamination,’ wrote Andrew Haldane and Robert May in an article in the Financial Times.