The new financial reform will go a long way to limit the vast new risks created by modern finance. The banks, which fought the legislation tooth and nail, are not giving up. They are now working to weaken new international banking rules.

Following the financial meltdown, the Group of 20 big economies asked the Basel Committee on Banking Supervision — made up of regulators from 27 countries, including the United States — to come up with new rules to moderate the banks’ wanton risk-taking and strengthen their balance sheets. The goal is to have a complete package ready for the November G20 summit meeting in Seoul.

The rules will tighten capital requirements for the world’s biggest banks — requiring them to set aside a larger cushion of cash and other easy-to-sell securities — and set stricter limits on banks’ leverage and liquidity.

That means banks will have to raise and hold more rather than invest it in risky and profitable assets. But it will improve banks’ ability to withstand another sudden drop in the value of their loans and investments. And by requiring more capital to cover more risky investments, it will reduce the incentive to take on excessive risk. More here.