We will read about many proposals to improve the global banking system in the coming months. By improve, I mean make the system less prone to systemic collapse (I don’t mean more profitable). We’ll see many concepts. Some will have merit. The final solution will doubtless be labeled Basel 3 and involve some of the following concepts:

• More realistic (viewed as stiffer) rules on what constitutes tier 1 capital
• Larger tier 1 capital reserves
• Bonds that convert to common equity (CoCo bonds) when banks suffer losses
• Limits and more scrutiny on esoteric risk hedging mechanisms
• More realistic (viewed as stiffer) rules (some rules?) on asset/debt rating companies
• More realistic (viewed as stiffer) rules that provide a full understanding of bank balance sheets. The intent being to capture off-balance sheet and shadow banking system issues.
• Levying a fee (some will call a tax because that serves their need to make banks appear the victim) to be used to make depositors whole. Think FDIC but with actual funding reserves.
• Taxing banker bonuses.

These concepts will surely make the global banking system less prone to cyclical and colossal failure. No, they won’t. Not without change to one key area that has yet to be broached. The area in question is obvious and rational, yet it continues to evade banking rule makers. Bankers and their regulators should be forced to accept personal responsibility for their actions and folly. This responsibility should include a measure of punitive action not merely exacted via writing a check (Sorry, personal injury law industry. You need a haircut too, and we need tort reform badly.).

There is no other industry capable of destroying an economy quite so elegantly. Banking is therefore different. It needs to be regulated in a manner that makes it far less prone to failure, and when failure occurs (and it will again), a heavy personal penalty should be exacted. Consider the unprecedented level of pain being sustained by American families (and others around the globe) because of the banking crisis. At what point does the colossal imprudence of a few not result in punitive action that is merely a smaller bonus?

Could we consider the damage done in the context of treason? Could it not be simply characterized as taking actions that cause great harm to your fellow citizens? Treason would be what the management of large banks and insurance companies did, but I suspect only IF there was intent to cause harm to our society. No one suggests that is the case. But didn’t we come just shy of that definition? Don’t think that the individuals running various schemes and funds, and those managing the schemers did not know that the failure of their business would inflict significant damage to our country.

I accept that much of the current damage is self inflicted. If you are old enough to have a mortgage, you are old enough to know that you should have a job and a reasonable down payment (20% worked for a long time) saved up. You should also have a few months worth of income saved up or maybe the friendly balance sheet of your family to help get you through a hard patch.

It will be suggested that if we impose a standard of care involving personal responsibility on our bank management and regulators, we will not continue to see the best talent in the banking system. If by best talent, you mean a proven ability to:

• Act in the best interest of yourself and/or company
• Take undue risk with other people’s life savings or be inept at uncovering those that do
• Earn (I use that word loosely) a compensation that is many times that of others that contribute meaningfully and in the highest way to our society (scientists, engineers, physicians, teachers) then yes, I suspect we’ll see less talent. I’m OK with that.

Let me be succinct. If you were a bank regulator or senior bank manager and knew you might do jail time for your actions (or inactions), wouldn’t you act differently? Wouldn’t you push for greater transparency and simplicity in understanding bank balance sheets and risk? It’s just not that hard to understand. Yet, we’ve done exactly the opposite. We’ve watered down accounting rules to permit more obfuscation. We’ve permitted assets to be misrepresented in terms of their intrinsic value.

But fail the banking system will — at some point in time in our future. Indeed, it could fail even more spectacularly because of the length bankers will go to work around new rules. And since it serves their personal interests to fight any new rules that restrict their ability to earn (there’s that word again) outlandish and indeed sinful wages, they will be out in force twisting rule makers and legislators arms. The best-purchased democracy money can buy.