How regulators caused the bank meltdown
Conventional wisdom says that the economic meltdown happened because of lax regulations on the nation's largest banks. It may be just the opposite.
Conventional wisdom says that the economic meltdown happened because of lax regulations on the nation's largest banks. It may be just the opposite.
In his 鈥淏usiness World鈥� column for the Wall Street Journal Holman Jenkins highlights the book Engineering the Financial Crisis by Jeffrey Friedman and ex-Mises Fellow Wladimir Kraus. Jenkins writes,
The Basel banking regulations provided the incentive for bankers to load up on mortgage securities, which up to that point history had shown were very safe. Thus, the capital that regulators required to be held against these assets was tiny. Bankers acted logically by investing in what they thought (and importantly what regulators told them) were safe assets that they could grow their businesses with the least amount of capital required.
Jenkins even gets it right at the end, writing, 鈥淥ne solution is giving back to bank creditors the job of policing bank risk-taking. Roll back deposit insurance, for instance.鈥�