stefan ingves : basel iii is simpler and stronger op - ed by mr stefan ingves, governor of the sveriges riksbank and chairman of the basel committee on banking supervision, published in the wall street journal, 15 october 2012. * * * the economic cost of the global financial crisis during the past five years has been frighteningly large. one clear lesson from the crisis is that regulatory capital requirements for the banking system were too low. or in other words, leverage was too high. under the pre - crisis rules, banks were allowed to increase their leverage to unprecedented levels. this increased risk in the financial system and when the crisis hit, the implicit guarantees resulted in massive public bailouts around the globe. the basel committee ’ s capital reforms, known as basel iii, substantially raise capital requirements from pre - crisis levels to reduce the probability of bank failures and the associated risks to taxpayers and to financial stability. recently, much has been made of the perceived shortcomings of basel iii. some argue that basel iii, which comes into effect next year, is not enough. others argue that basel iii is too complex and should be replaced by a simple leverage ratio, calculated as tangible equity to non - risk weighted assets. in my view, the basel iii agreement fundamentally enhances national and global financial stability by both raising the level of capital required by banks, and by simplifying the regulatory framework. it is no small task to reach a global consensus on these often quite technical matters. part of the consensus is that basel iii should be seen as a set of minimum requirements. hence, countries are free to impose more stringent rules if they wish. but we should not underestimate how basel iii strengthens bank - capital adequacy rules. a fundamental feature of the new framework is the significant increase in required minimum capital levels. all banks must hold common - equity capital of at least 7 % of their risk - based assets, compared with only 2 % previously. in the event of a credit boom, banks under basel iii would potentially need to hold a further 2. 5 % in common equity, bringing the total to 9. 5 %. finally, the most systemically important banks must hold up to 2. 5 % in additional common equity. that is a total of 12 %, a sixfold increase from pre - crisis levels for these institutions. the basel committee supports a regulatory framework that is both prudent and as simple as possible. hence the basel iii agreement introduces

00 nov - 00 jul - 01 sources : consensus forecast and the riksbank in the more recent discussion in the media and on the markets, attention has focused on more specific flows. this discussion is not always completely accurate. one reason for this is that it is not the individual flows, but rather the complete picture including all of the flows, various currency strategies, etc. that determines developments. we have little knowledge of the extent to which the players in the economy take exchange rate positions when they buy and sell various types of securities. we know from financial theory that large fluctuations in financial prices can often occur without any connection to large flows. concern about the government finances can hardly have been a crucial factor in the latter 1990s. neither is it probable that the short - term interest rate differential played a sizeable part, though an effect at times cannot be ruled out. in the more recent discussion, attention has focused on more specific flows. there were periods last year, for example, when the paths of the stockholm stock exchange and the swedish krona were rather closely related. it looks as if the krona tended to fall when foreign investors quit the market. the sizeable purchases of foreign securities by swedish investors have a similar effect ; recently, these purchases have mirrored the opportunities provided by the new pension system. flows that are comparatively small in this context have also been occasioned by the repayment of government external debt. at the same time, purchases of kronor have presumably decreased in that export receipts have fallen significantly for a number of large companies this year and big concerns have increased their cash holdings in foreign currency accounts. moreover, in recent years increased unrest in the international financial markets has tended to hit the swedish krona ; this was particularly evident during the financial crisis in autumn 1998. it seems to be a consequence of a generally heightened aversion to risk in the major financial centres, such as new york and london. money is then withdrawn from countries whose currencies and economies took a beating in similar situations in the past ; since the crisis in the early 1990s sweden is unfortunately included in this category even though the current macroeconomic situation does not warrant this. finally, the generally stronger dollar should be mentioned as a partial explanation for the weak krona. many economists consider that according to conventional theory the dollar ’ s strength is inexplicable and the dollar is markedly over - valued. in this situation the swedish krona, like most other currencies in the oecd area