Senate proposal for stronger capital ratios

[calicon]

Brown and Vitter have introduced a bill that would impose vastly higher capital ratios than even Basel 3.

http://www.bloomberg.com/news/2013-04-0 ... llion.html

I'm really intrigued by this proposal. In several respects, it's a lot of what I've believed makes for stronger banking systems: higher capital ratios (especially for TBTF, but also in general) and increased reliance on tangible common equity and less on risk weighted assets. So for those two point I think this is a great thing. However, this bill as introduced I think will bring in some rather large negatives. A binary transition at $400 billion is too arbitrary and the surcharge for being above that is way too large for it. In this day and age, there's no reason why we can't have a gradually increasing capital ratio surcharge (that could start at even dollar 1, or perhaps at $50 billion) and plateaus at 5% at 400 billion. That would prevent the market dislocations, and reduces incentives for building up right next to the limit and parking there (ie, would improve market efficiency). It's clear that the threshold and surcharges are designed to be political and not economical. As far as I can tell, the fact that this bill only focuses on increasing equity ratios will make it be harder for small banks at the expense of medium sized banks. This is because without reducing the cost of compliance as well, you're going to have smaller banks falter under minuscule margins while medium sized banks will be able to absorb more of the cost across more assets. This is also non-optimal, as it creates more barriers to entry for the market.

Anyways, it's an interesting proposal, I'll be curious to see how it turns out.

[The Dharma Bum]

The only way to eliminate all risk to lenders is to eliminate usury.

[Spider]

^


Anyways, this is one of those nasty things that I think is a step in the right direction. I agree about it leaning on the little guys a bit, but on the other hand its better to have small fires take longer to warm up than big ones burn out of control.

[The Dharma Bum]

It's just forcing small lenders out of the market so conglomerates can control it because that makes it easier for government to control the economy.

Doesn't even really address the underlying issue which is basically mismanagement and unethical behavior on the part of the big financial conglomerates.

[Kane]

[Kane]

It sounds interesting, I'll read it if I get a chance but I think what we're doing now is working pretty well. Our banks are benefiting from very strange times as our European peers continue to f**k themselves over continuously.

[The Dharma Bum]

[eynon81]

(raises hand) does anyone else think it's retarded that we'd make investment banks and commercial banks carry the same capital ratios?



(also I'm for eliminating banks with more than 400 billion in assets...period)

[eynon81]

GUYS! GUYS!

this is interesting:
http://consumer-banking.findthebest.com/l/74/1st-Bank

http://consumer-banking.findthebest.com ... f-the-West

1st Bank, a prominent commercial bank here in Colorado, has under 13 million in total assets.

Bank of the West, a prominent regional commercial bank, has just over 63 million.

I assumed their asset levels were much larger.

[Indy]

Here's what will blow your mind, as I just read in an excerpt of a new book: the capital many of these monstrous banks have on hand. Want to guess at a number?