By Karamjeet Paul
Those calling for higher capital requirements for banks have the right objective of making financial institutions and the system stronger (everybody agrees with that objective). However, their proposals to increase capital don’t receive support from everyone because their approach is not a proven one.
In a New York Times article on August 10, 2014, “When She Talk, Banks Shudder,” Prof. Anat Admati of Stanford University was quoted as offering an analogy of what’s wrong with banks today: “My comparison is to speed limits. Basically what we have here is the market has decided nobody else should be driving faster than 70 miles an hour and these are the biggest trucks with the most explosive cargo and they are driving at almost 100 miles an hour.”