For many years, banks have provided borrower default indemnification as part of their securities lending services, which has given beneficial owners additional assurance as to the safety of their lending programs, and has allowed pension funds and others for whom such indemnity is legally required to participate in the securities lending market as well.  Up until now, banks offering this kind of guarantee have not been required to reserve capital for the associated contingency, and indemnification costs have typically been bundled into the overall fee for services agreed to by beneficial owners and their agents.  Lately, however, the Financial Stability Oversight Council (FSOC) and others have questioned whether this kind of indemnification is a source of stress on the balance sheets of banks, and potentially a threat to financial stability. Also, banking and other regulators are exploring whether borrower default indemnification should be swept into new Basel III leverage ratios and reserve capital requirement, which could make indemnification unviable.

Basel III introduces a leverage ratio and raises the minimum risk-weighted capital ratios, but it does so using highly arcane formulas, suggesting more insight and accuracy than can possibly be achieved. Where the markets assess, demand and adjust intrinsic risk weights on a daily basis, regulators using Basel look backwards and never catch up.

Even as countries strive to meet the quickly approaching Basel III deadlines, some fairly influential voices in regulatory policy are wondering aloud if the latest Basel guidelines are up to the task.   Thomas M. Hoenig, director of the Federal Deposit Insurance Corporation, in a September 14, 2012 address before the American Banker Regulatory Symposium, raised his concerns that Basel III is based on faulty assumptions and processes, and introduces unworkable complications into an already complex system.  Hoenig proposes an alternative, a "back to basics" approach he feels would be more easily monitored and enforced, and represent a better measure of a firm's ability to withstand financial adversity.