Implicit bailout guarantees disincentivize bank capital
The guest argued that the largest banks operate under an implicit assumption of being 'too big to fail,' which drives lobbying for lower capital requirements and increases systemic risk.
The argument
She expressed skepticism that Dodd-Frank resolution authorities would ever be deployed in a crisis, predicting that regulators would instead opt for bailouts or special lending facilities, allowing banks to run lower capital to maximize return on equity.
The thesis, stress-tested
✓ What validates it
- ✓Federal Reserve implementation of lower-than-expected capital requirements for large banks
- ✓Creation of new emergency Fed lending facilities during market stress
▸ Risks discussed
- ▸Stricter Basel III endgame capital requirements could still be implemented
- ▸A future crisis might actually force regulators to use resolution tools instead of bailouts
Hear it yourself
"I've had a I've done a lot of different things in my career, and I young people, I tell them, don't try to preprogram your career. Note me narrow minded about opportunities. And, a lot of people stay in the same job for thirty, forty, fifty years. I respect that. That's fine. That was never for me. I'm always looking for new things. But I guess my my first entree, to the big leagues or at least adjacent to the big leagues was when I worked for Bob Dole as his counsel. First on the senate judiciary committee where I actually I staffed him on the Voting Rights Act compromise to title two of the Voting"
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