Many stories about resistance to regulation, both from banks and regulators inclined to go easy on their charges when they see the depths of their dire straights, drive from this dynamic: regulatory reform is usually imposed in hard times, when banks are finding it difficult to turn a profit.  But when the times are easy, reforms become hard to justify.  Hence the latest story, amid news that two European banks are struggling, about Basel's liqudity coverage ratio.

In Europe, central bank officials think banks preparations’ for the ratio could be making it even harder for banks to fund themselves. The incentives baked into the rule effectively deter banks from borrowing for short periods from, say, money market funds and other banks.

The prep makes the funding more expensive, which makes the banks less profitable, which makes them look less sound, and aren't regulators supposed to be protecting the soundness of banks, rather than threatening it?  It's a constant balancing act, and argument 1 by the banks for regulatory forbearance.

As for one of those troubled European banks, UBS, its struggles could be part of the Swiss plan to get out of TBTF banking.  Sometimes, to some regulators, it's worth making the banks suffer.

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