Tuesday, July 20, 2010

Quote of the day

Felix Salmon:
The idea of countercyclical capital buffers is a really good one. When credit is expanding faster than GDP, bank regulators slowly increase their capital requirements, signaling those requirements clearly one year in advance. The higher capital requirements serve three main purposes: they help to slow down credit bubbles, they make an economy’s banks stronger, and they offer a way out of the paradox of capital.

This is the type of thing that will really help prevent financial crises. As I've argued over and over, the issue is leverage. Period. Focusing on anything else is the result ignorance or hobby horses. Devils and details and all that with this though.

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