• What if banks were to get a capital benefit from investing in superior risk management technology – and if that benefit was disclosed to the market?
• Should not the costs of risk management investments by FDIC-insured banks be partly repaid by taxpayers in the form of capital relief?
• Why don’t capital rules allow a reduction in risk-weighted requirements, to help offset the lost revenue and encourage conservative risk management?
• Dynamic metrics are far more relevant for understanding the levels of stability in securities finance than are static sizing and demographics alone.

European bankers are caught up in a debate over whether to disclose their full supervisory capital demands to market participants. That’s an issue because bank supervisors, under Pillar 2 of the Basel III accord, can set a bank’s regulatory capital “guidance” at a level higher than its Pillar 1 “requirements.” Bank analysts and investors can discount the securities of banks with relatively high guidance, assuming that supervisors have learned something negative in their confidential reviews. That’s the essence of Pillar 3: Market Discipline.

Since passage of the Dodd-Frank Act in 2010, the financial industry has been dealing with an almost unstoppable wave of regulatory reforms. Most, if not all have been designed to prevent a repetition of the problems that followed the failure of AIG and Lehman Brothers in 2008. Now, after the U.S. election of a conservative majority in two (and soon to be all three) branches of the U.S. federal government, many bankers feel that a huge regulatory weight is about to be lifted. Some bankers expect a reversal of the drive toward reforms, perhaps even repeal of Dodd-Frank. That’s not going to happen, at least not without a lot of work.

Although there may be receptive listeners in government, it will take more than a supportive administration to ease the pressure for reforms. The nation has been repeatedly told that the financial industry brought the economy to the brink. Reform is now expected by Main Street voters. A new narrative must be formulated before the conservatives can delay imposition of the final rules, much less repeal the most restrictive measures.