Saturday, June 21, 2008
Bank Regulation, Sure
"In a move that could provide a glimpse into the future of global financial regulaton, the top finance official in the United Kingdom's resurgent opposition Conservative Party met Friday with the chairman of the the U.S. [Fed] to discuss ways to prevent a repeat of the current credit crisis. ... One solution, which Mr. [George] Osborne discussed with ... Ben Bernanke, is to make banks set aside more capital during the booms, damping their aggression in good times and lessening thier need to pull back so sharply during the busts. ... The problem: Banks magnify booms by increasing their lending activity, and then make the downturns worse by pulling back and trying to rebuild their capital cushions. ... 'In Britian, there is now an urgent debate about how to reform our system of financial regulation,' said Mr. Osborne, who has spoken to other central bankers about the idea. ... Osborne has an increasingly strong platform to propose the idea of requiring banks to set aside more capital. He is in line to be the U.K. Treasury chief if the Conservative Party wins in a general election. ... The idea of implementing countercyclical capital requirements is seeing increasing backing among economists. ... And many economists and bankers believe such programs just won't work. 'It would require central banks to have a very strong idea of where the market should be and what is the correct price for an asset, and that is usually what central banks don't like getting into,' said Giles Moec, a senior economist at Bank of America in London", WSJ, 9 June 2008.
This is more Keynesian nonsense. The Fed can't stabilize the economy, now people want it to stabilize the banking system? Crazy. My answer: end fractional reserve banking.