This morning’s leak via Reuters that the new Basle requirements will be looking closely at Tier 2 capital will no doubt have the Friedmanite unrepenters on hundreds of high horses by the end of the day. The story – broken by Felix Salmon via credit sector source Melvyn Westlake – is significant, says Salmon, because it means those closest to the train-wreck will have to cough up before the taxpayers:

‘…..the new Tier 2 capital requirement of 10.5% is an important number: it basically means that if any bank does need a bailout, its subordinated bondholders are going to be the first to do the bailing out, rather than the government’.

On the same day, as it happens, another commentator – Richard Beales – rightly raises the alarm about how little has really been done to make allowances for mad people. He notes:

‘…authorities must remain vigilant and skeptical, over and above enforcing new rules. After all, in mid-2008, Lehman would have comfortably exceeded new Basel III capital standards’.

This is a very good point, and I wish I’d made it. But both this and the Salmon piece gave me an obvious idea. There is a way, I think, in which regulation could be minimal (and the taxpayer entirely protected) by simply insisting that every registered bank around the Globe must join BORA.

If you’ve never heard of BORA, it’s because I just made it up. The acronym stands for Banking Oversight Regulatory Association: it would regulate banking industry systems, but in the somewhat mind-concentrating knowledge that if and when a bank failed, the banking sector alone would be paying for it.

For the benefit of US, Aussie, and eurozone readers, the tour industry in my country has this exact model via an operator’s club called ABTA. To be taken seriously, membership of ABTA is obligatory. ABTA levies fees on its own industry to pay for regulatory staff. And if an ABTA member goes down the tubes, the industry must both rescue the passengers and pay the creditors.

Now many readers of this loopy idea will ask (a) how can you possibly let the banksters regulate themselves? And (b) what happens if so many banks fail, there’s not enough to bail out the victims?

As regards (a), I’m not talking about BORA acting in the role of consumer protection: that really would be insane. What I mean is, if these guys are master tightrope-walkers, let’s take away the safety net. The theory is that after hitting the ground a few times, they’ll stop walking tightropes.

Point (b) takes us into the territory of ‘you’re confusing me with someone who cares’. Some day, somehow, bankers must learn the reality of liability. And if their brain illness is so far advanced that system (a) doesn’t cut it, then we need different people in banking. And more insane asylums.

The truth is, however, that no matter how bad things get, the well-run banks benefit under the current system. After 2008, Santander, J PMorgan and Goldman Sachs simply went around the battlefield taking the gold teeth out. A ghoulish but rewarding job this – and I don’t recall any of the winners shedding tears about it.

There is of course an obvious gauntlet in this piece . It goes like this: ‘You want self-regulation? OK, you got it. Now off you go, and remember – next time, you pay, not us.