2010-05-20

What's the Deal with Capital Requirements?

Share

The Senate is attempting to close the debate on financial regulation again today after yesterday's botched cloture vote due to a couple of Democratic defections and near-unanimous Republican descent. Word is the newest Republican maverick, Scott Brown, might change his mind and not vote to filibuster, but that still leaves the Dems one vote short, assuming Arlen Specter decides to bother coming back to Washington after his primary defeat on Tuesday.

Ok, great -- the Senate might pass it's version of the bill this week. But the story is still far from over on what the legislative sausage factory will produce, especially after the House and Senate bills go through reconciliation (it's not just for healthcare anymore!). That's one reason that some analysts are saying the Senate shouldn't be in such a hurry to close this debate.

One of the most contentious aspects of the bill as it now stands involves the issue of capital requirements for the banks -- how much money (or other various assets) they have to hold in order to ensure that they can pay back their lenders and cover their losses. An amendment proposed by Sen. Susan Collins (R-Maine) is at the center of this argument. Her change was unanimously passed last week, but only recently did it start to garner much attention, and it's many critics now include the Treasury, the Federal Reserve, and Wall Street:

"I don't believe that the senators understood the full implications of this amendment," said Edward Yingling, chief executive of the American Bankers Association trade group. "It would cause a severe capital crunch for many banks, resulting in the major decrease in lending capability."

U.S. and foreign bank regulators are working to complete new international capital requirements by the end of this year, and Treasury Department Secretary Timothy Geithner has made it one of his top goals. Sen. Collins's provision could affect those discussions by creating a new federal law mandating capital standards.

First, the banks' mantra that any and all financial regulation will "result in a major decrease in lending" is getting tiresome. It's true that right now the U.S. needs better, smoother credit flows, but once the economy is comfortably back on its feet, credit availability should be kept in check. That's the whole point of regulation -- remember excessively low interest rates and easy credit were a major factor in creating the financial mess in the first place. So claiming now that higher capital requirements will hurt banks' ability to lend is disingenuous. Although it might be an argument for phasing in higher capital requirements slowly.

This really seems to come down to a battle between the FDIC and the Treasury and the Fed about who will be in charge of setting and overseeing bank capital requirements. The latter institutions want more flexibility in determining these regulations both domestically and internationally. Recent events have shown that unilateral regulatory decisions can create havoc in the markets. Still, most observers have been saying for months that stricter capital requirements on the banks is one of the few no-brainers when it comes to financial reform. Demanding higher capital requirements now, but phasing them in once the economy is stronger might be the best solution because after the upswing takes hold, enacting solid and sensible reforms will only get harder. Plus, at least for now, if Wall Street is really pushing against it, you have to assume it's good.

0 comments:

There was an error in this gadget

Labels

12 Days of Christmas (3) 2008 Olympics (2) 2008 Presidential Election (2) 2012 Presidential Election (1) A Christmas Carol (2) A Christmas Story (1) Acumen Fund (1) Adventures in Niche Blogging (2) advertising (1) Afghanistan (3) Africa (1) AIG (1) alabama (1) Amazon Affiliate Program (1) American Recovery and Reinvestment Act of 2009 (1) Anger (1) Apartment Locator (1) Apology (1) Apple (1) art (1) Ash Wednesday (1) atul gawande (1) Auto-Tune (2) awesome break (1) awesomeness (1) backwards hats (1) Balanced Budget (1) Bank Lending (1) Barack Obama (9) Barack Obama Newspaper Headlines (1) Barcadia (1) Barry Ritholtz (2) Bastille Day (1) Big 12 Controversy (1) Big 3 Bailout (1) Big Picture (1) Bikers (1) Bill Gates (1) birthday (2) blackberry (1) blake (17) Blog Action Day (1) Boing Boing (1) Bon Iver (1) Book of the Month (1) Books (1) Breast cancer (1) British Psychological Society (1) Brookings Institution (1) BTHO McCain (1) BTHO Obama (1) Bush Legacy (1) Business (1) Carlos Santana (1) Champs-Élysées (1) Charitable Giving (1) Charles Dickens (1) Chart of the Day (1) Chartible Contributions (1) Child Poverty Rate (1) China (1) Chris (10) Christianity (1) Christmas (2) CNBC (1) Coal Vines (1) College Football (1) College Station Texas (1) Comics (1) Congress (1) Congressional Budget Office (1) Conservapedia (1) Conservative (2) Consulting (1) Corn (1) Credit default swap (1) cross country (1) Curious Case of Benjamin Button (1) D.O.A. (1) Daily Show (1) Dallas (13) Dallas date night (1) Dallas Morning News (1) Dan Pink (1) Dave Eggers (1) David after the dentist (1) David Dewhurst (1) David Faber (1) David Feherty (1) Death (1) Death of Auto-Tune (1) Debate (1) Deep Ellum (1) Deep Fried Butter (1) Deficit (2) Delivering Happiness (2) Dennis Lehane (1) Department of Education (1) DFW (1) diabetes (1) Dick Cheney (1) Dikembe Mutombo (1) Dilbert (1) Direct-loan (1) Diversity (1) Documentary (1) Donors Choose (1) Doonesbury (1) economic stimulus (1) economic stimulus plan (2) Economy (9) Education (1) england (1) Environment (1) Ezra Klein (4) F-22 Raptor (1) Fannie Mae (2) Farewell (1) Farm Bill (1) FAS (9) Fast Food (1) Federal Budget (1) Feist (1) Festivus (1) Filibuster (1) Fiscal policy (1) food fight (1) Food Stamps (1) France (3) Freddie Mac (1) Free Chick-fil-a (1) Ft Worth (1) Funny (1) games (1) Gary Becker (1) General Motors (1) George Packer (1) Giveaway (1) Glenn Beck (1) Goldman Sachs (1) good reads (3) GOP (1) Government spending (2) Greg Mankiw (2) Gross domestic product (1) Guantanamo Bay (1) Gulf of Mexico (1) Haiti (1) Hans Rosling (1) Happiness (1) Happy New Year (1) Hasselhoff (1) Health care (10) Health care reform (8) Health insurance (2) Heritage Foundation (1) Hipster (1) History of war (1) Holiday Shopping (1) holidays (2) Hot Chip (1) Hot N Cold (1) House of Cards (1) Human Development Index (1) Iliveindallas (1) Illegal immigration (1) Immigration reform (1) Inappropriate (1) Inauguration Day (4) Income tax (1) Independence Day (1) Indian Superman (1) Industrial Revolution (1) Inefficient (1) Inspiration (1) Insurance (1) Internal Revenue Service (1) iPhone 4 (1) Iran (1) Iraq (1) Iraq War (1) Israel (1) Israeli settlement (1) Jack Bauer (1) Jacqueline Novogratz (1) Jay-Z (1) jcvd (1) Jimmy Fallon (1) Jimmy Fallon's House Band (1) Joaquin Phoenix David Letterman (1) Job creation program (1) Job Market 2009 (1) John Cornyn (2) John McCain (1) Jon Stewart (1) Kaiser Family Foundation (1) Kaiser Permanente (1) Kanye West (2) Karl Rove (1) Kat Perry (1) Kristi (1) Laser Portraits (1) Late Night (1) Late Night with Conan O'Brien (1) Lee Harvey's (1) Lent (1) Liar's Poker (1) Life (1) Life expectancy (1) light show (1) lights (1) Lil' Wayne (3) Links (2) Lobbyists (1) Lonely Island (1) mad men (1) Mahmoud Ahmadinejad (1) Malcolm Gladwell (1) Malthusian Trap (1) Mashable (2) Matt Chandler (1) Matt Simmons $500 oil (1) Mayo Clinic (1) McAllen Texas (1) McCain (6) media (1) Medicaid (2) Medical malpractice (1) Medicare (4) Mergers and Acquisitions (1) metro (1) Michael Jackson (1) Michael Lewis (1) Microfinance (1) Mike (85) Military (1) Milton Bradley (1) Mint.com (1) Missional Giving (1) Missional Living (1) MIT (1) MIT Media Lab (1) Mitch Daniels (1) Moneyball (1) Morocco (1) Mother's Day (1) Motivation (1) MTV (1) Music (19) My life in a cube (1) My parents joined facebook (1) NBC (1) Netflix (1) New Firm Logos (1) New season 24 (1) New Year's Resolutions (2) NEXT Worldwide (1) NFL (1) NHS (1) Nobel Peace Prize (2) Non-profit (1) Non-profit organization (1) Norman Borlaug (1) Obama (7) Obamacare (1) Oil Spill (1) One Stop Schop (5) Open-source education (1) Outliers: The Story of Success (1) Palin (1) Pamplona (1) Pan-American Highway (1) Parenting Tip of the Day (2) Paris (3) Party Ideology and the rationalizing voter (1) Paste Magazine (1) Paul Krugman (1) Peak Oil Theory (1) Pearls Before Swine (1) Pell Grant (1) Pentagon (1) PEPFAR (1) Perspective (2) Philosophy (1) Pick of the Week (1) Place de la Concorde (1) Politics (13) Politifact (1) Polk (12) Popular Mechanics (1) Potbelly (1) Poverty (3) President Bush (1) President Obama's Secret Plan to Brainwash Our Children (1) President-Elect Barack Obama (1) Project Leper (1) projection art (1) prosumer report (1) Quality-adjusted life year (1) Racism (1) Rahm Emmanuel Ari Gold (1) Ralph Waldo Emerson (1) Random (2) Random Site of the Week (4) Rap (1) Rasmussen Reports (1) Religion and Spirituality (1) Rick Santelli (1) Road (1) Road traffic safety (1) robbery (1) Robert Gates (1) Ronald Reagan (1) Roy Blunt (1) SAME Cafe (1) Santa Clause (1) Santogold (1) Sarah Palin (1) Sarah Palin 2012 (1) Sean Hannity Freedom Concert Series (1) Shutter Island (1) Silver Star (1) Site of the Week (1) Slate (1) Social Security (1) SOTU (1) Special Forces (1) Spending (1) Sports (3) Sports Nutz (1) Stanley Hauerwas (1) Stock Market (2) StoryCorps (1) Success (1) Supreme Leader of Iran (1) T Boone Pickens (1) T. R. Reid (1) Taliban (1) Tax (1) Taxation (3) Taxpayer Receipt (1) Technology (2) TED Talks (3) Texas (1) Texas AM (1) Texas AM Football (1) Texas Department of Transportation (1) Texas Government (1) Texas State Board of Education (1) Texas State Fair (1) thailand (1) Thanksgiving (1) The 2009 Stimulus Bill (1) The Big Lebowski (1) The Big Picture (1) The Blue Sweater: Bridging the Gap Between Rich and Poor in an Interconnected World (1) The Credit Crisis (3) The Daily Show (1) The Daily What (1) The Decembrists (1) The Economist (2) The GAP (1) The Healing of America (1) The Laux Family (1) The Perfect Honeymoon (1) The Roots (1) The Schop Ten (1) The Village Church (1) The Wire (1) The Woodlands (1) This is Indexed (1) Time Magazine (1) TJ Lavin (1) Tony Hsieh (2) Top 5 Christmas Specials (1) Top Golf (1) Top Post (8) Tort reform (1) Torture (2) Torture Memo (1) Tour de France (1) track (1) Travel (4) Travel and Leisure (1) trends (1) Troubled Asset Relief Program (1) TSA (1) Tulsa Oklahoma (1) Unemployment (1) Unemployment Insurance (1) United States (3) United States Presidential approval rating (1) United States Senate (1) Universal health care (1) University of Texas (1) Unnecessary Quotes (1) Utz Potato Chip (1) Venture Capital (1) Video (10) Video Clip of the Week (5) Videre (1) Vietnam (1) Vimeo (1) Waiting for Superman (1) Wall Street (1) We Are Hunted (1) Wedding (1) Weekend Update (1) Welfare (1) What Is the What: The Autobiography of Valentino Achak Deng (1) Williams Shakespeare (1) Winner (1) Woodall Rodgers Park (1) Wordle (1) world diabetes day (1) Worst Commerical of 2009 (1) Ying Yang Twins (1) You Rent We Split (2) YouTube (1) Zappos.com (1)
 

One Stop Schop. Copyright 2008 All Rights Reserved Revolution Two Church theme by Brian Gardner Converted into Blogger Template by Bloganol dot com | Distributed by Deluxe Templates