Market Discipline for Banks

Arnold Kling

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John Allison, a former bank CEO and hard-core libertarian, suggests requiring Federally-insured banks to have 20 percent equity capital. That is in the last part of a 10-part interview, during part of which he questions the need for Federal insurance in the first place.

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mark writes:

And he is absolutely right. The 20% equity should be accompanied by a level of debt right above it that regulators can convert to equity if the original layer is reduced below 20%.

Posted December 16, 2009 1:10 PM

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