“The skirmishing is almost over, the main armies almost assembled. Ahead is a great battle over the future of our financial system that could have more profound consequences than the Dodd-Frank legislation of 2010.
“The battleground is the hearts and minds — and fears — of the seven people who make up the board of governors of the Federal Reserve System. The critical contest will be about bank capital and how large financial institutions should fund themselves. The fog of war has masked the terrain, so that even well-informed bank lobbyists don’t realize they have wandered into a potentially disadvantageous position.
“It remains to be seen whether the Fed can make the most of this real opportunity for reform. Too many governors still seem encumbered by a flawed mental model of how megabanks work.
“The headlines continue to focus on the international agreement regarding capital requirements — known as Basel III – – and how it will be implemented in the U.S. There are interesting questions here, including what the Fed will decide regarding the so-called SIFI surcharge (the extra equity funding required for systemically important financial institutions).”
Read full Simon Johnson’s Bloomberg View article here