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Geithner Goes After the Banks

Timothy Geithner has released his principles (pdf) for regulating the capital requirements of too-big-to-fail banks. Forcing big institutions to keep a larger cushion of cash could both curb the risk they pose to the system (as they'd have more money to bail themselves out) and make it less likely that smaller banks will want to become big enough to pose a risk to the system (because they'd have to operate under all these burdensome rules). Both are very good things, but the degree to which they actually happen depends on the stringency of the requirements.

I haven't read the principles yet, but people who know this stuff far better than I do are impressed. You can download them here.

By Ezra Klein  |  September 4, 2009; 2:16 PM ET
Categories:  Financial Regulation , Solutions  
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Since Ezra likes food related stuff:

Treasury Principles are like the menu. Until the bankers (eaters) read and comment on the menu, and tell the chef he's full of bad stuff, and the final food (hard rules) is delivered and eaten, it is very hard to rate the restaurant or decide if you love/hate the place.

Goldman Sacks (intended), JP Morgan/Chase, BOA, Wells, Citi, GE Capital, et. al. haven't unleashed their disinformation apparatus and 'contributions' to Congress yet.

Wanna bet they don't get 10% of what they deserve in the way of supervision and regulation?

Posted by: JimPortlandOR | September 4, 2009 3:17 PM | Report abuse

The goal of preventing future too-big-to-fail decisions is admirable, and I hope they achieve it. They can probably include enough drag to prevent small banks from getting huge. But to prevent an existing huge bank from failing in the future, the new regulation and oversight must add enough size-based drag to motivate the existing huge banks to fracture. The regulatory regime must actually motivate them to break down into smaller banks, which sounds like a high bar for reform legislation to clear.

Perhaps the best we can hope for is reform that prevents small banks from becoming huge, combined with regulatory policy and/or future legislation that identifies new types of securities or trades and then tells huge banks "because of your size (systemic risk), we can't let you take part in this activity."

Posted by: extensive_vamping | September 4, 2009 4:29 PM | Report abuse

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