Notes of Note from John F. Ince

An international body of bank regulators that set capital standards for banks, known as the Basel Committee, recently announced how much capital banks should hold. It amounts to a 33-to-1 leverage ratio. In other words, banks should hold $1 for every $33 they lend out or speculate with.

“Bear Stearns entered this crisis and failed with a 34-to-1 leverage ratio,” Hoenig said of the first big Wall Street firm to collapse during the crisis. “It leaves a small cushion for error and is a level of risk that I judge unacceptable.”

Hoenig added that the financial reform bill President Barack Obama signed into law last month may not have ended the perception that some financial firms are Too Big To Fail, one of legislation’s chief goals.

“The simple truth is Too Big To Fail will not go away easily,” he said. Speaking of the regulators the bill empowers — yet doesn’t fully compel — Hoenig said the next crisis will depend on the leadership atop the regulatory agencies.

via Federal Reserve’s Low Rate Policy Is A ‘Dangerous Gamble,’ Says Top Central Bank Official.


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