Basel III proposes to tinker with the risk weights for assets, particularly emphasizing higher risk weights for assets in the trading book that also embody credit and counterparty risk.

The Shadow Committee believes that several events have undercut the meaningfulness of the Tier 1 capital designation. Because of these problems with the definition of Tier 1 capital ratios, they have provided an unreliable guide to market perceptions of capital adequacy during the financial crisis.

During two closed sessions before the luncheon, committee members discussed the latest in financial regulation issues. At a luncheon briefing following these sessions, SFRC members gave several statements and answered questions.

On April 5, 2012, the President signed into law the Jumpstart Our Business Startups (JOBS) Act, which passed by a large bipartisan majority in the Congress. The Act is designed to facilitate the equity funding of new companies. Recent research has documented that from 1980 through the 2008-09 recession new companies have been main drivers of job creation in the United States. 

One of the many requirements of the Dodd-Frank Act is that all federal agencies must remove references to and reliance on credit ratings from their regulations and replace them with alternative methods for evaluating creditworthiness. 

Europe's banks and entire monetary system are in crisis from the sovereign debt of financially weak governments.  But the capital requirement for banks to hold such Euro denominated debt was zero.  It was defined as "risk free," but has instead led to massive losses.

The Shadow Financial Regulatory Committee (SFRC) is a group of publicly recognized independent experts on the financial services industry--including banking, insurance and securities--who meet regularly to study and critique regulatory policies affecting this sector of the economy.

The Dodd-Frank legislation has many problems and omissions, and much is still uncertain about implementation. But the new liquidation authority provides for the possibility of making it so that future crises do not involve the bailouts of creditors that truly embodied the problem of having banks that are too big to fail.