Making banks safer

Following its mandate of a five-year time frame for Indian banks to achieve compliance with the Basel-III prudential norms, the Reserve Bank of India (RBI) has now announced a stricter capital requirement for banks that it deems to be domestic systemically important banks (D-SIBs), or banks "too big to fail". This could at best be a pious wish.The root of all troubles is the Capital induced growth , the core of a neo-modern  global financial framework , led to insatiable demand for credit .That made banking as exciting as it was risky.19 th century bankers  matched the value of their deposits with their own capital even up to  a 50/50 basis,there being no concept of a limited liability .As limited companies ,ownership and control were separated , ownership widely dispersed in shareholders and  risks  capped by limited liability enabling  banks to  assume far greater risk even as they took on more debt to boost their returns. In due time  banks  were permitted to deduct their interest payments from their tax liabilities , a  subsidy for financial risk-taking ! The hubris continues,as under the Basel framework, government debt of developed countries are assigned a risk weight of zero. That meant that with  hardly any capital, major banks could hold unlimited amounts of the sovereign debt of such nations and still pass the credit test .The rules that allowed sovereign debt ,say of Greece that lost 70%  face value and yet carry zero credit risk , set up a fiscal tsunami across eurozone  leading to global repercussions. Globally banking  is perhaps already on a  wilder path  beyond rules and regulations ,where both risks and returns have soared and failures written into  the DNA of too many of them ,the risks  being always borne by the wider society.
Pub Fin Express July 28 
http://www.financialexpress.com/news/letters-banks-must-be-made-safer/1274430