…in an era of greater regulation the government is writing the rules. The definition of what constitutes an adequate capital cushion keeps going up. For example, at the beginning of this month, Daniel Tarullo, Federal Reserve board governor, suggested that bank capital levels should be far higher than the 7 per cent level required by Basel III.
Regulators have further determined that investment in government securities involves no capital hit, despite the fact that sovereign debt these days is in some cases as risky as lending to companies with junk ratings.
At the same time, governments are raising liquidity requirements and ”“ no surprise ”“ it is government securities that are classified as the most liquid.
Omigosh! “Financial repression” – banks which have rigged the rules and manipulated the markets are now being held accountable. Such “repression”.
No, that’s not repression. But if part of the problem was the banks behaving in less safe practices in how they used the money deposited by people, this is going to be an issue. If the article is right, credit will be more expensive (because more money has to be held as security by the bank and therefore earns less) but it won’t be any more secure in reality. Government will be helped out as banks buy its increasingly less reliable debt, but banks won’t be any more secure as a result.
So higher interest rates for everyone without more security for the money held by the banks. But at least the government will be able to go further into debt. So I suppose that’s a win.
Banks accept government insurance of deposits and government charters limiting their liability. Let them speculate with the funds deposited over the 250K limit.
Again, missing the point. The point of the laws requiring banks to not speculate with all the money deposited with them (a law I fully support btw) is to make banks more financially secure in case of economic problems. But rigging the calculations of what counts as ‘secure’ to favor Government debt only helps out the government in its desire for buyers of its debt. It is using the desire for banking regulations (a desire that I think is good) to achieve a different end, and end not compatible with the reason why people want banks more regulated.
RE: “Government will be helped out as banks buy its increasingly less reliable debt, but banks won’t be any more secure as a result.
So higher interest rates for everyone without more security for the money held by the banks. But at least the government will be able to go further into debt. So I suppose that’s a win.”
Mark’s got it exactly right. And of course, this will harm the poor far more than the rich.
But hey — the collectivists will be happy that the State gets to regulate more [in its favor too]. It won’t actually *accomplish* the point of the regulation. But at least there’s more regulation! And that’s all that matters.