Minimal capital requirements are a potent growth hormone for too big to fail banks.

Sir, I refer to Ben McLannahan’s “Kashkari scheme to end ‘too big to fail’ deserves a fair hearing” November 20.

Neel Kashkari, Jeb Hensarling and Thomas Hoenig are all correct in requiring banks to hold more equity… the minimum capital requirements of 1.6% and less, meaning leverages 62 times to 1, and more, have been the most potent growth hormones ever for the too big to fail banks.

But, since I sincerely believe that one of the greatest dangers for the banks, and for the real economy, is the distortions produced by risk-weighted capital requirements, were this source of distortion to be completely removed, then I think that a 8 to10 percent capital on all assets would suffice… especially if there is a clear reduction in the moral hazard producing government guarantees… especially if the prosecutors of wrong-doings begin to go after the responsible executives and not just shareholders’ capital.

That fixed capital requirement of 8 to 10% should of course also be applied to sovereign debt.

Though I am not a US citizen, I do have immense respect for USA’s Declaration of Independence and Constitution, and I must say, pardon me, that the risk weights of 0% the Sovereign and 100% We the People, reads to me like a slap in the face of the Founding Fathers.

PS. Clearly there is a conflict between wanting the banks to hold more capital, which would be the result of eliminating current risk weighted capital requirements, with wanting the banks to also serve the credit needs of weak economies. But there are ways to harmonize, like grandfathering any changes in the capital rules meaning leaving them as is for all the current assets of banks.

PS. You might ask yourselves what do I have to do with all this. Let me be clear, as a Venezuelan, and a Polish citizen, one whose father was liberated by American soldiers from a concentration camp in 1945, and as a grandfather of two Canadians, I am absolutely sure we all have much skin in the game with respect to how it goes for America… (And that goes for you too Sir… much more that you would naturally want to admit) 

@PerKurowski