Basel - where all the money goes

The Swiss city of Basel at night. Photo / Wikimedia Commons from user <i>son_gismo</i>

This week central bankers met in the Swiss city of Basel to workshop solutions to the world's faulty financial system.

Basel has lent its name to the global banking reform program that is being directed by the low-key but powerful Bank of International Settlements (BIS) and is overseen by the acronym-resistant 'Group of Central Bank Governors and Heads of Supervision'.

After the latest BIS-sponsored thinkfest, European central bank president Jean-Claude Trichet, who chairs the Basel oversight body, outlined the group's plan to save banking.

Trichet said implementing the Basel reform strategy was "critical to achieving a more resilient banking system that can support sound economic growth over the long term".

Indeed, Trichet's group has "requested" that the actual Basel reform committee "deliver a fully calibrated and finalised package of reforms by the end of this year".

I'm not sure what this means but it does sound impressive. The reform package includes a range of measures mainly designed to brake banks' risk-taking behaviour and install bigger airbags in the event a bank does crash.

My favourite of the five reform measures proposed by the Basel group is the introduction of "a framework of countercyclical capital buffers", aimed at stopping banks from getting too carried away in the boom times or too tight-fisted during recessions.

But as the big-end-of-town gets its buffers in order, we, the little people, also have to get our collective acts together to prevent this annoying money disappearance problem.

According to a survey conducted by Visa late last year, consumers the world over are suffering memory lapses about where their money goes.

In what Visa terms "mystery spending", thousands of dollars each year go unaccounted for.

"Despite consumers' focus on controlling spending, they are still losing track of a considerable amount of money each year - particularly when shopping or spending leisure time with friends and family - key activities during the holiday season," said Wayne Best, Visa's chief economist, somewhat redundantly.

The worst offenders, according the survey, are Australians who could not recall where over $3,000, or 34 per cent, of their annual spending budget went.

Where does it all go? My guess is that it all ends up back at the bank, contributing to the buffer build-up and liquidity improvement program.


David Chaplin