January 19, 2011

A case for capital requirements for banks based on corporate organization and management´s stake

We outsiders, we taxpayers, we do not run the risks of the clients of a bank we run the risk of how the bank is managed. Therefore, much more than being concerned with the credit ratings of the clients of a bank, we need to concern ourselves with how the bankers of that bank react to those credit ratings.

In this respect John Kay´s “How trust in finance was carried off by the carpetbaggers” January 19, makes a splendid case for having bank capital requirements for banks depend on such aspects as to how much of the risks of the bank are shared by the management of the bank. As an example, for a bank operating as a full partnership or a mutual, the capital requirements could be 6 percent of all assets, while for a fully public bank 12 percent, with the in-betweens covered proportionally.