European regulators introduced Basel III regulations for banks. It increased capital ratios, limits on leverage, narrow definition of capital (to exclude subordinated debt), limit counter-party risk, and new liquidity requirements. Critics argue that Basel III doesn’t address the problem of faulty risk-weightings. Major banks suffered losses from AAA-rated created by financial engineering (which creates apparently risk-free assets out of high risk collateral) that required less capital according to Basel II. Lending to AA-rated sovereigns has a risk-weight of zero, thus increasing lending to governments and leading to the next crisis. <answer>Johan Norberg</answer> argues that regulations (Basel III among others) have indeed led to excessive lending to risky governments (see European sovereign-debt crisis) and the ECB pursues even more lending as the solution.
Who argued that regulations led to excessive lending to risky governments?
Johan Norberg