By Karamjeet Paul
Recent proposals to increase the bank capital requirement to 15% amount to kicking the can down the road.
Why 15%? After all, if the solution is so simple then why not raise it to 50% to make banks super safe? The 15% requirement is just as arbitrary as any other subjective figure that can be brought to the table. Instead, regulators should address the fundamental issue that creates the need for capital in the first place, and help us truly postpone our next day of reckoning.
Capital serves a critical function. Managed properly, it supports growth by cushioning exposure from unexpected hits that may otherwise discourage prudent risk taking. Without this focus, stricter capital regulations not only avoid the real issue. They actually add three new risks.
Karamjeet Paul
Sustainability Management 