Will this table prevent the next financial crisis?
There it is. Basel III, in all its glory. The chart you're looking at is a summary of what international regulators are going to do to try and stop another financial crisis from happening. The numbers atop this post are more important than anything in the financial regulation bill.
The first column is the most important. To simplify it a little, it's the amount of cash (or, to be more precise, common equity) banks have to hold, and it's measured as a percentage of total assets. This is the money that they'll have laying around in case their investments go bad and they need to start paying lenders back. This is the money, in other words, that will stand between the banks and insolvency. (Want a longer explanation? Head here.)
Before the crisis, it was 2 percent. That turned out to be a terrible, terrible mistake. Want to know which banks survived the financial crisis? It was the banks with the most common equity, like JP Morgan. So the regulators at Basel are jacking it up: Now it begins at 4.5 percent. Then there's something called a "conservation buffer," which adds another 2.5 percent. If you don't have a conservation buffer, you get more regulatory scrutiny, you can't offer dividend payments, etc. In other words, you'll want a conservation buffer.
Then there's the "countercyclical buffer." If credit is growing faster than the economy, banks have to keep as much as another 2.5 percent of common equity. So if all this was in place and enforced in 2006, banks would have needed 9.5 percent of common equity in 2006. If they'd had it, the economy would be in a much better place right now.
This agreement is supposed to phase in over the next eight years. Some people are worried about that, but I think it wise: The best time for banks to have high capital requirements is right before a crisis, but the worst time is right after one. If banks have to raise capital, they don't make loans. And if they don't make loans, the economy can't recover. We're actually seeing a bit of that now, so I'm happy to see Basel move slowly.
Finally, I'd still like to see more of these numbers written into U.S. law. International agreements are great, but they're not binding: We didn't enforce Basel II, and though we're likelier to implement Basel III, as it's coming at a moment when regulators want to be strict rather than lax, it'll be easier to wiggle out of 20 or 30 years from now when the economy is booming again and everyone feels confident. If these numbers were set as a floor for capital requirement in U.S. law, our regulators couldn't stop enforcing them unless Congress actually changed the law. That could happen, of course, but it's probably less likely than regulators simply easing up on the reins a bit.
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