Reduce Bank Capital Requirements

Tyler Cowen joins the club calling for lower capital requirements. At least, that is what I think he is doing by referring to a paper by Kashyap, Rajan, and Stein.

Tyler writes,

Their phrase "recapitalization as a public good" should not soon be forgotten.

Menzie Chinn includes an article suggesting that bank credit to small business has tightened. The simplest, cleanest, quickest solution to that is to lower capital requirements.

UPDATE: On the other hand, The Washington Post reports,

Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets.

My approach would be to lower them at the margin--on new loans. But I would not lower them for loans to home builders.

Comments and Sharing