The clash between APRA and the major banks over Basel III has become noticeably louder over the past week. For more than a month now, the Australian Prudential Regulation Authority has been defending its plan to implement parts of the Basel III framework ahead of the required deadline (see table). This accelerated timetable has been attracting increasing criticism from ANZ CEO Mike Smith, the Australian bank boss most ready to stir the pot. Last Wednesday an ABA meeting confirmed Smith as the new chairman of the Australian Bankers Association, by rotation - and his very first act was to issue a statement criticising the speed of APRA's Basel III rollout.Until last Wednesday it wasn't clear how much support Smith had from his colleagues for his "slow Basel" campaign. But Smith's fellow CEOs would have had to sign off on his statement, at least informally, at Wednesday's meeting. By doing so, they signalled their joint reservations about APRA's timetable.When APRA announced its accelerated timetable back in September the case for it was solid, and even the ABA's "questioning" of the decision in a media statement seemed half-hearted.But now, with the eurozone problems looking increasingly likely to develop into a fully fledged new global financial crisis, there's a growing case for APRA to at least signal some flexibility.The circumstances of the Basel III implementation are unique in the history of prudential supervision. Until now, changes to prudential ratios have been quiet affairs, mostly conducted during times of relatively healthy economic growth; Basel II was implemented in the last years of the pre-GFC boom.It's now increasingly likely that if Australia's Basel III implementation starts as scheduled, in January 2013, it will begin in the shadow of a major financial crisis. For the first time we have to ask the question: how much will prudential tightening affect the real economy?And the answer is that we don't really know. Pushing up prudential ratios leaves less money to be lent, a point bankers have been quick to make. But pushing up prudential ratios also boosts confidence in the system, which matters in a financial crisis. Which factor matters more will be a matter of judgement.But Basel III itself assumes that prudential rules can affect the real economy. The Basel III rules include a "counter-cyclical buffer" of up to 2.5 per cent of assets that can be applied when credit grows too quickly. If requiring more bank capital makes sense when credit is growing too fast, then you have to assume that the opposite also applies: when credit isn't growing fast enough banks should be allowed to hold less capital - or, at the very least, not be forced to hold more.Other regulators have already begun to react. On November 10, the Reserve Bank of New Zealand delayed for six months its planned June 2012 increase in the core funding ratio, a liquidity standard. A couple of days later, Bank of England stability chief Andrew Haldane, usually a prudential hawk, suggested that UK capital settings might need