Summary of Basel III:

European banking stocks posted strong gains Tuesday after global regulators agreed to soften some of their new capital and liquidity rules and to phase in the reforms over several years.

Most of the banks passed the stress tests. But sane accounting practices might cause the whole fraud to be exposed for what it is.

This isn’t simply an example of captured regulators. The regulators may have some understanding of the magnitude of the problem. Several European banks are operating with insane leverage ratios, holding assets much larger than their home countries’ GDPs. As a consequence, regulators must either allow the banks lie about their health or allow the banks to collapse. They aren’t just too big to fail, they are too big to be bailed out. Since everyone is afraid of the consequences of a banking system collapse, they will do anything they can to allow the system to continue. But as I’ve said before, sometimes authority and effort aren’t enough to determine outcome.