Morning Brief: United States Falling Short on Basel III

Morning Brief: United States Falling Short on Basel III

World leaders reaffirmed their pledge to implement Basel III during the G20 Summit in Cannes, France in November 2011 (Philippe Wojazer/Courtesy Reuters).
World leaders reaffirmed their pledge to implement Basel III during the G20 Summit in Cannes, France in November 2011 (Philippe Wojazer/Courtesy Reuters).

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The Basel Committee on Banking Supervision found weaknesses in implementations of Basel III (Bloomberg). Its report to the G20 leaders—who will meet next week in Mexico—described weaknesses in implementation by the United States, the European Union, and Japan as well as developing economies. Basel III implementation will begin in 2013 and last until 2019. Concerns about U.S. implementation include: not including enough U.S. banks, the Dodd-Frank Act ban on external credit ratings in assessing riskiness of capital, and the lack of published rules for Basel III regulations as well as market risk assessment updates to Basel II.

In December of 2010, the CFR’s Maurice R. Greenberg Center for Geoeconomic Studies held its World Economic Update, a panel discussion in which experts analyzed the effect of the Basel III accords and new U.S. federal regulations. Meeting videos and a transcript are available.

SEC Proposes Derivatives Regulations

The Securities and Exchange Commission (SEC) proposed new regulations of over-the-counter (OTC) swaps (NYT). The new rules would require most derivatives contracts to be traded through regulated exchanges such as the Chicago Mercantile Exchange, and to go through clearinghouses, which would backstop contracts if a party defaults. The Dodd-Frank Act required the SEC to write these new rules by last summer and implementation dates have not yet been proposed. Separately, the Commodity Futures Trading Commission expects to release new rules governing derivatives at the end of the year, may forgo cost-benefit analysis (Bloomberg).

Corporate regulation and taxation. Read more from top economists and business experts on solutions for addressing corporate tax reform.


Funding Portals May Boost Startups

As part of its Understanding Entrepreneurs special report, the Financial Times discusses the emergence of funding portals to provide crowdfunding for startups. April’s Jumpstart Our Business Startups (JOBS) Act legalized the use of registered internet portals for venture investment. The portals open up a new source of finance to startups unable to secure angel or venture capital investment, but may place the general public at risk for fraud.

In the face of persistently high unemployment, policymakers and workers look to innovation and entrepreneurship, the primary engine of U.S. job growth over the past thirty years. This CFR Backgrounder by Steven J. Markovich discusses how entrepreneurs create and finance startups and the ramifications of policies such as the JOBS Act.

Innovation. Read more on how the U.S. capacity to innovate could play a chief role in economic growth.


Wind Market to Die Down with PTC Expiration

The CEO of Vestas, the Danish firm that is the world’s largest producer of wind turbines, expects the expiration of U.S. production tax credits (PTC) at the end of 2012 to trigger an 80 percent decline in wind projects (Reuters). The PTC gives utilities a 2.2 cent per kilowatt-hour benefit for the first 10 years of operation. The wind market has been hot this year, as utilities accelerate projects before PTC termination. When the PTC was eliminated in 2002, the wind market declined by 75 percent.

Scott Thomasson, the president of NewBuild Strategies and an expert on infrastructure funding, recently authored "Encouraging U.S. Infrastructure Investment," a Policy Innovation Memorandum released by the CFR’s Renewing America initiative. Thomasson proposes new initiatives to address crumbling U.S. infrastructure.

Infrastructure. Read more on how upgrading the nation’s aging network of roads, bridges, airports, railways, and water systems is essential to maintaining U.S. competitiveness.

Education and Human Capital

U.S. STEM Gender Gap is Among the Largest

Test scores indicate the persistence of a STEM achievement gender gap is the United States that is among the largest in the world (EducationWeek). On international tests, American boys outperform girls, while in other nations the gender gap is smaller, or non-existent. On all STEM Advanced Placement (AP) tests, U.S. males outscore females. While some experts believe the recent, rapid growth of the number of female STEM AP test takers may be weighing down scores, others point to stereotypes and cultural attitudes.

Education and human capital. Read more from experts discussing ways to improve U.S. education and immigration policies.

International Trade and Investment

Burgernomics 101

Since 1986, The Economist has published the Big Mac index, a tool for economists to understand international differences in wages and prices. Purchasing-power parity (PPP) theory argues efficient markets shift prices and currency values until standardized goods have roughly the same cost. Few products are as ubiquitous and standardized as McDonald’s Big Mac. With the Big Mac index, economists have found that relative to the U.S. dollar, the Swiss franc is overvalued while the Chinese yuan is undervalued. Standardizing wages in terms of Big Macs per hour shows real U.S. wages declined from 2000 to 2007, while rising in many developing economies.

International trade and investment. Read more from leading analysts on the debate over next steps in U.S. trade policy.

The Morning Brief is compiled by Renewing America contributor Steven J. Markovich.

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