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February 19, 2013

A Valuable U.S. Export: Banking Regulations

By this point in the economic recovery, the biggest U.S. banks had expected the pressure from regulators to abate. In the aftermath of a major financial crisis, there is usually a turn toward tighter rules, and banks naturally build up their equity buffers after near-death experiences.

It is standard practice, at this point in the credit cycle, for bank advocates to claim that a great deal has changed, that banks have more equity capital than at any time in recent memory and that governments need to ease up on the rules if they want credit to expand and growth to take hold.

“This is exactly what leading representatives of global megabanks now say. And there are indications that European regulators are listening, as France, Germany and other nations back away from previously promised reforms.

In the U.S., however, there are signs that official thinking is pushing in the opposite direction, in particular toward requiring larger buffers of loss-absorbing equity.”

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Read Simon Johnson’s full Bloomberg editorial here

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