NY Times: The Answer to Too Big to Fail?

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NY Times: The Answer to Too Big to Fail?

A draft of the Brown-Vitter bill, which was leaked to Quartz last week, offers a simple and elegant solution to the “too big to fail” problem by requiring all banks to have capital equal to 10 percent of their assets. The measure would also force regulators to impose additional capital requirements on banks with assets of more than $400 billion; that additional capital would increase with the size of the bank, but the total would always be less than 15 percent.

Forcing the banks to hold more capital makes sense because it makes them less dependent on government bailouts during a crisis. Furthermore, banks are less likely to make brazen gambles when they have their own shareholders’ money at stake than when they are primarily betting with the money of depositors, bondholders and taxpayers.

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