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August 2, 2011

Greenspan’s reasoning on ‘excessive’ equity is misleading

Alan Greenspan’s article “Regulators must risk more to push growth” (July 27) involves false characterisations and inappropriate analogies. Therefore, it is misleading about capital requirements and their costs.

If banks hold excessive liquid asset reserves, as Mr Greenspan asserts, this has little to do with capital regulation. The reserve levels are the result of banks’ own choices, presumably coloured by the experience of wholesale markets drying up after Lehman’s insolvency. Is Mr Greenspan second-guessing market participants?

Read the full story at The Financial Times

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