Jack Ma, the co-founder and chairman of Chinese technology giant Alibaba, has attacked the Basel regulatory framework for the global banking system, calling it a hindrance to development.
The Basel rules, first introduced nearly fifty years ago at the Bank for International Settlements (BIS), which is based in the northern Swiss city, set minimum capital and liquidity requirements for the world’s banks.
Confronting the old guard
In a speech made on Saturday in Shanghai, Ma said the Basel standards had been designed by “a club of old people” and were inadequate for today’s digital economy.
“If a child takes Alzheimer’s medicine to cure polio, there will be many new problems”
Instead, Ma called for a new framework based on big data, cloud computing and blockchain technology.
“The symptoms of Alzheimer’s and polio may look similar, but they are two completely different diseases. If a child takes Alzheimer’s medicine to cure polio, there will be many new problems,” South China Morning Post reported Ma as saying.
“The Basel Accords are intended to treat diseases of an ageing banking system, it is a medicine for old people … but China’s financial system is still in its youth,” Ma said.
The Basel rules have been through several iterations since their introduction in 1974. Most recently, they were amended following the 2008 financial crisis to create today’s ‘Basel III’ framework.
Basel III sets minimum capital requirements for banks, as well as a maximum leverage ratio and a minimum liquidity ratio.
Speaking out ahead of giant Ant Group IPO
Ma’s comments came ahead of the planned initial public offering (IPO) of Alibaba affiliate Ant Group, which is due to become the largest equity fundraising in history.
Ant Group plans to list simultaneously in Hong Kong and Shanghai in the coming weeks. The share sale is due to raise up to $35bn, surpassing the record set by Saudi Aramco’s $29.4bn float in December.
This would value Ant at up to $320bn, making it the world’s highest-valued financial technology (fintech) company.
The jewel in Ant Group’s crown is the world’s largest mobile and online payments platform, Alipay, which has over one billion users.
“Big banks are like big rivers … but we need ponds, creeks and small channels in the system”
In his speech, Ma suggested that financial firms should move away from collateral-based lending approach, which he described as relying on a “pawn shop” mentality, and towards a lending model that uses big data and credit records to allocate funds.
In China, Ant Group uses a social scoring system called Sesame Credit to give users with high ratings collateral-free access to a variety of goods and services.
Decentralising the financial system
Ma also made a pointed criticism of the bank-centred financial system and suggested it should become more decentralised.
“Big banks are like big rivers … but we need ponds, creeks and small channels in the system. Without these in an ecosystem, floods and droughts will always happen here and there,” Ma said.
In his speech, Ma went on to praise innovations in money, an area where China has been in the vanguard.
The country is a leader in blockchain technology and is on the verge of introducing a new form of state-backed digital currency, which threatens US control of the global financial system.
“Digital currency could create value and we should think about how to establish a new type of financial system through digital currency,” Ma said.
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