Can't regulate what you can't see
I'd side with Drum, though I'm not terribly confident. Two reasons: First, I've done a fair bit of reporting on this issue (including trying to figure out how enforceable domestic leverage requirements would be), and the experts I've spoken to -- a distinguished, if not comprehensive, list -- all agreed that domestic leverage requirements could be imposed on the banks and would have an effect. The downside, they thought, wasn't that the requirements wouldn't work, but that they'd work too well: If we had caps and other countries didn't, our banks would be less competitive. This is a major reason that banks and bank-friendly legislators want to let regulators set leverage requirements.
Second: The banks really, really don't want leverage requirements. Resolution authority? Sure. Funeral plans? They'll draw them up. But they don't want their leverage capped. That may be because they don't want to go to the trouble of evading the caps. But it seems likelier that they're at least as worried that the caps will be effective as Johnson and Kwak and Waldman are that they'll be sidestepped. Now, it's possible that nothing short of breaking up the banks and limiting their activities will work, but since it's hard to see how that will pass, capital requirements seem like our best bet.
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