regulation-reform

Despite Basel III's shortcomings, I have yet to hear of a better solution than combining risk-weighted assets with a strong leverage ratio. Both require uniform guidelines for banks and disclosure.

A study by The Clearing House Association found that a proposed leverage ratio would force banks to raise $200 billion in capital or shed roughly $3.7 trillion in assets. The study also found that the leverage ratio would be a binding capital rule for two-thirds of big-bank assets.

The Federal Reserve Board now demands that big banks proactively manage reputational, strategic and compliance risks – qualitative things they traditionally viewed as outside their control. The new discipline will serve banks well.

With proposals afoot in both chambers of Congress, and President Obama moving the issue to the forefront, we can dramatically modernize our country’s housing finance system.

Incessant lawsuits and enforcement actions convert a taxpayer problem into a shareholder concern, immune to lobbying efforts. The surge will lead to restructuring efforts, including spinoffs, as managers seek to simplify operations and improve performance.