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The Geithner Plan
Via Felix Salmon, I see that Tim Geithner has unveiled his plan — or, more accurately, his guiding principles — for regulating leverage more effectively in the financial industry. And it's not bad. Basically it requires (a) stronger capital requirements across the board; (b) higher capital requirements for bigger firms, which would make larger firms somewhat less profitable; (c) an emphasis on real capital, not shell games; (d) higher capital requirements in good times and lower requirements in bad times; (e) a simple leverage constraint as sort of a backup to the more complex main capital rules; (f) stronger regulation of off-balance-sheet vehicles; (g) some kind of minimum liquidity requirement so that banks can't be wiped out in just a matter of days by a bank run; and (h) extension of all these rules to big non-banking entities (the "shadow banking" system).
All of these are described in general terms, and I note that (h) is described in especially dodgy terms. So we won't know how serious Geithner is about this stuff until he rolls out the details. But at least he seems to singing the right songs.
has to be vague
Kevin, in Geithner's defense, the last one has to be vague, since you can never tell what's going to get turned into a "bank" in the future. Name a bunch of stuff when you prohibit it and they find another hole.
Good to Know
Thanks for passing this info on. I hadn't seen it anyplace else, and I'm glad to know the administration is doing something constructive these days...
Dodgy? No. As usual you don't quite grasp:
The last point (h) had to be more general insofar as:
(i) Non Bank actors touched on are structurally quite diverse, and largely under Capital Markets supervision; (a-i) were coherent as a discussion of Bank regulation. These other actors may require rather different structures (and their own paper to profile).
(ii) Without doubt, unlike the fairly well-studied bank proposals (which are essentially refinements of existing regulations and approaches), these entities may require some radically new development in terms of efficient regulatory rules.
The Lounsbury
Heh, funny to see an old "doper" lurking around in unexpected places. What, Bush finally made you a bleeding heart liberal hippie?
am I the only one who thinks that's a wierd pic of Geithner?
Couldn't find a regular only head shot, so you went with facing away, hunched over and looking back over his shoulder at the camera? It reminds me of George Castanza's "sexy" photoshoot on Seinfeld. And that's not a good thing.
Missing half...
tagged as:- solution
Where's the regulation of the ratings agencies? Without the rating agency corruption, the housing bubble would have been a lot harder to build....
An appropriate definition of
tagged as:- solution
An appropriate definition of a "bank" for purposes of (h) is anything which borrows short and lends long. There is probably some way to define that. (Perhaps, any entity such that all of its loans are for shorter terms than the longest of its borrowings isn't a bank, while everything else is?)
I hope that...
...the final regulations will really address the "too big to fail" problem.