Wednesday, June 22, 2011

Capital Reserves? No Thanks, Say the Banks

Joe Nocera, a business-reporter-turned columnist for the New York Times, ran an informative column yesterday about raising the required amounts of capital that international banks must have in reserve to cover their lending. As he notes, the Basel III agreement being negotiated in Switzerland would require the banks to have 7 to 10 percent of reserve capital on hand, far less than the 14 percent preferred by Federal Reserve Governor Daniel Tarullo. (Nocera is a co-author of one of the best books on the mortgage meltdown, reviewed in this space in a previous post.)

Naturally, of course, the big Wall Street banks and their allies in Congress are resisting this push, citing the dangers of "over-regulation." But we've tried de-regulation of the financial industry over the last 30 years and ended up with the worst financial crisis since the Great Depression (and it may yet equal the Great Depression).

Which raises a rhetorical question. Why can't the banks and politicians do the right thing for the nation and the world, even it means some modest sacrifice?

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