http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
Bob-Jenkins
...As you have heard I had the honour to serve at the Bank of England. It was an exciting time. The banking system was undercapitalized. Greece threatened the eurozone. The eurozone threatened the banking system. The bankers threatened the politicians – lest the politicians threaten the bankers. And as I left, political leaders were leaning on the regulators not to lean too heavily on the banks.
“Too big to fail, bail and jail” summed up the challenge. Capital and accountability framed the regulatory response. There has been much activity. But though the motion has been great, the movement has not. Leverage remains high and accountability low. Sadly, the courage to address either seems lacking.
Capital, accountability and courage. All other issues pale in comparison. Allow me a word about each.
Capital
I will start with capital. We continue to work our way through the greatest credit bubble in history. Now bubbles are not new. They are always the same – and always a little bit different. They always feature heavy doses of greed, stupidity and leverage. What distinguished our recent episode from all past experiences was the degree and magnitude of leverage. Now we will not abolish greed. We cannot outlaw stupidity. But we can and must address excessive leverage. Have we done so? No.
It has not been for lack of trying. The first attempt involved a rewrite of Basel. The new rules tighten up on definitions of banking risk and place an overall cap on leverage. Are the rules tougher than before? Yes. Are they tough? No. Most importantly, are they sufficient to ensure stability? No.
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