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July 16, 2013

Obsession with Capital Overshadows Other Key Reforms

There is a downside to policymakers’ infatuation with capital — and I’m not talking about industry claims that credit will evaporate.

The real problem is everything else in the Dodd-Frank Act that’s getting short shrift while federal regulators fascinate over the power of capital rules to reform the banking business.

The list of sidelined goals is long: curbing interconnectedness; taming derivatives; capping leverage; rebuilding liquidity; banning proprietary trading; enhancing prudential standards; and slowing concentration.

Sure, requiring higher capital may have spillover effects, helping to accomplish some of those objectives. And, yes, the federal agencies have made some progress on some of these rules. But clearly regulators have consciously chosen to toughen capital rules over actually implementing many of the provisions in Dodd-Frank that were designed to prevent a repeat of the 2008 financial crisis.”

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Read full American Banker article here

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