The Basel III financial stability rules, back in the headlines this past week, are frequently depicted as the main regulatory reaction to the global financial crisis. Basel Committee chairman Nout Wellink says they "will significantly reduce the probability and severity of banking crises in the future." In Australia, though, the main prudential game is elsewhere, beyond the formal rules.In Australia, we're seeing the last major piece of the Basel III picture fall into place with the compromise to help Australian banks meet Basel III's liquidity coverage ratio.And late last week the Basel Committee issued its rules text - the detailed rules to back up the broad principles hashed out over the past year and ticked off by the G20 in November. (See also Banking Day's Basel III backgrounder.)Last week, the committee also released its quantitative impact study, setting out how Basel's new capital adequacy rules will affect banks. The impact is substantial: had the rules been in place at the end of 2009, the large global banks would have been short just €577 billion (A$774 billion) of capital.The effect on the world economy, according to a new report by the Basel Committee and the Financial Stability Board, will be a cut of up to 0.22 per cent of GDP after nine years. That's substantial, but nothing like the bruising impact claimed by banks. (In June, bank lobby group the Institute of International Finance predicted Basel III and other measures would cost the US, the euro zone and Japan 3.1 per cent of economic growth and nearly 10 million jobs over five years.)For all this, Basel III's ability to "reduce the probability and severity of banking crises" will be limited at best. A group of 20 prominent economists, including the University of Chicago's Eugene Fama and John Cochrane, the London School of Economics' Charles Goodhart and Princeton's Markus Brunnermeier, last month wrote an open letter warning Basel is too weak. The Basel capital ratios should be much tougher, they argue, and the continuing system of risk weightings invites "innovations" that will add to the risks in the global financial system.The Basel rules may have a limited and uncertain effect in the US and Europe, and all the signs are that they will have barely any effect in Australia, where bank capital is already close to or better than Basel III requirements.In Australia, in particular, the main burden for preventing imprudent bank behaviour will continue to fall on the prudential regulators at APRA. They will keep pushing and prodding banks, testing their internal controls and credit policies, and scrutinising their innovations. How well they do this will be hard to gauge until the day things go wrong again. But their work will have more impact on Australian banking than Basel III.