Some readers quickly labeled all 19 megabanks' failure to pass the Office of the Comptroller of the Currency's new risk tests as evidence that "Too Big to Fail" remains very much alive. Others blamed the OCC's stricter standards.
Tax incentives and penalties drive behavior regardless of whether or not they represent sound economic reality. And banks will be asked to provide lending and investment support accordingly.
While some may suggest the practice is warranted so agency attorneys can address deficiencies hurting consumers, ultimately everyone loses when opportunities for frank discussion are lost.
Regulators need to create an environment where firms are not afraid to speak out. Banks need to come up with clearer explanations of their business models to prevent the creation of unnecessary rules.
Ensuring that corporate boards include a diverse set of skills, backgrounds and personalities helps against groupthink's dislocation of corporate and shareholder interests.
The "living will" process gives financial institutions the opportunity to, among other things, frame policy, improve operational efficiencies and educate the market, business units and regulators.
Anywhere in the world, if you had $55 billion in capital, and then lost $55 billion, your capital would be zero. But under the Fed's own special accounting rule, if it lost $55 billion, its capital would still be $55 billion.
