by Summary:
In the wake of the financial crisis, new regulations on bank capital and stress tests strengthened the ability of the major U.S. financial institutions to withstand shocks. The Trump administration’s plans to weaken capital requirements threaten to undo these gains. If they go forward, the financial system could again be dangerously vulnerable.The right amount of capital is a question of insurance: how much output to sacrifice in return for reducing the expected loss from a crisis. Equity capital is the buffer that enables banks to absorb losses without being forced into bankruptcy and damaging the wider economy. But extra capital, as my examination of the evidence shows, comes at a cost, and involves an output penalty. The challenge is to get this balance right.... American Banker
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Mike Norman considers the following as important: bank capital requirement
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In the wake of the financial crisis, new regulations on bank capital and stress tests strengthened the ability of the major U.S. financial institutions to withstand shocks. The Trump administration’s plans to weaken capital requirements threaten to undo these gains. If they go forward, the financial system could again be dangerously vulnerable.The right amount of capital is a question of insurance: how much output to sacrifice in return for reducing the expected loss from a crisis. Equity capital is the buffer that enables banks to absorb losses without being forced into bankruptcy and damaging the wider economy. But extra capital, as my examination of the evidence shows, comes at a cost, and involves an output penalty. The challenge is to get this balance right.... American Banker
Topics:
Mike Norman considers the following as important: bank capital requirement
This could be interesting, too:
In the wake of the financial crisis, new regulations on bank capital and stress tests strengthened the ability of the major U.S. financial institutions to withstand shocks. The Trump administration’s plans to weaken capital requirements threaten to undo these gains. If they go forward, the financial system could again be dangerously vulnerable.American Banker | BankThink
The right amount of capital is a question of insurance: how much output to sacrifice in return for reducing the expected loss from a crisis. Equity capital is the buffer that enables banks to absorb losses without being forced into bankruptcy and damaging the wider economy. But extra capital, as my examination of the evidence shows, comes at a cost, and involves an output penalty. The challenge is to get this balance right....
William R. Cline | senior fellow at the Peterson Institute for International Economics