17 years after the global financial crisis, the world appears to be flirting once again with regulatory amnesia. The slow, painful lessons of 2008—learnt through collapsed banks, frozen credit markets, and taxpayer-funded bailouts—are beginning to fade as governments loosen the very safeguards that were put in place to prevent a repeat. The most aggressive shift is coming from the United States under Donald Trump, where bank regulators are actively cutting capital requirements in the name of competitiveness and growth. On paper, this looks like a technical recalibration. In reality, it signals a bigger change in philosophy: a belief that financial systems are now robust enough to tolerate more risk. That belief should worry India. Not because our banks mirror Wall Street’s excesses, but because global finance is tightly interlinked, and regulatory dilution in one major economy rarely stays contained. When the world’s largest financial system eases constraints, capital flows shift, risk appetites change, and emerging markets often end up absorbing the aftershocks.
The post-2008 global framework—shaped by the Basel Committee on Banking Supervision and codified in Basel III—was designed to ensure that banks everywhere held enough high-quality capital to survive periods of stress. The idea was simple: well-capitalised banks lend more steadily over time, rather than collapsing spectacularly in downturns. Yet today, the so-called “Basel III Endgame” is being quietly diluted. The U.S. Federal Reserve is reviewing leverage ratios, stress tests, and capital surcharges on its largest banks, moves that analysts estimate could free up nearly a trillion dollars in additional lending capacity. Europe and Britain, wary of falling behind American lenders, have delayed or softened their own implementation timelines. Japan alone has chosen to fully press ahead. This is not yet a regulatory race to the bottom—but it is unmistakably a collective easing of discipline. And history tells us that financial crises are rarely born out of malice; they emerge from confidence that quietly becomes complacency.
For India, the implications are complex. Our banking system is structurally different from those of the U.S. or Europe. It is still dominated by public sector banks, regulated conservatively by the Reserve Bank of India, and shaped by domestic credit needs rather than global trading desks. After a bruising decade marked by non-performing assets, governance failures, and taxpayer recapitalisation, Indian banking has only recently returned to health. Capital adequacy ratios are strong, asset quality has improved, and credit growth is robust but not reckless. This recovery owes much to regulatory caution rather than deregulation. The RBI’s insistence on prompt corrective action, tough recognition of bad loans, and conservative stress testing prevented Indian banks from chasing short-term gains at the cost of long-term stability. If global standards now weaken, India will face pressure—from investors, lenders, and even policymakers—to “unlock” capital and accelerate credit. That temptation must be resisted. India’s growth story does not need fragile banks. It needs resilient ones that can lend through cycles, support infrastructure investment, and withstand global shocks without returning to the taxpayer’s doorstep.
There is also a broader lesson here, one that goes beyond capital ratios and regulatory acronyms. Banking regulation is not merely about numbers; it is about intent, enforcement, and institutional memory. Even in advanced economies, the difference between safety and crisis often lies in how seriously regulators are taken, not how cleverly rules are written. The current U.S. posture—where the unspoken message is to get regulators “off the backs” of banks—should serve as a cautionary tale. Strong banks are not those that distribute the most capital to shareholders in good times, but those that retain the capacity to lend when times turn bad. As India aspires to become a $5 trillion and eventually a developed economy, financial stability will be as critical as growth. Diluting prudence in pursuit of short-term competitiveness is a mistake the world has already paid dearly for. India would do well to remember that, even if others seem determined to forget.