The article discusses the lessons learned from the 2008 financial crisis and argues that too much debt and leverage, combined with too little high-quality capital, always leads to negative consequences. It also highlights the ongoing debate about implementing Basel III rules and the concerns raised by industry executives and lobbyists.
Have we learnt anything from the great financial crisis of 2008? Or any number of banking crises that came before or since, right up to the collapse of Silicon Valley Bank and others last year? Sometimes I think not. To me, the core lesson is that too much debt and leverage, combined with too little high-quality capital on hand, always ends in tears.
And yet, as the massive lobbying by US banks pushing back against the Fed’s attempt to implement Basel III rules shows, we are still arguing about the basics of what makes the financial system safer. Industry executives and lobbyists say, as they always do, that holding more capital against risk will make them less profitable, and thus crimp lending (despite plenty of evidence that it hasn’t thus far). They are also arguing that it will push risk into shadow banking instead. Finally, they complain that the current proposed rules are far too complex. On the latter point, I agree — 1,087 pages is a lot of tex
Financial Crisis Banking Crises Debt Leverage High-Quality Capital Basel III Rules Lobbying Industry Executives Lobbyists Risk Lending Shadow Banking
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