With respect to increased capital requirements for banks, what matters most for growth and stability is how it is required.

Sir, I refer to Alex Barker´s and Tom Braithwaite´s “EU and Fed clash over US bank move” April 23. In all the hullaballoo what seems to be ignored, perhaps more by EU than by the Fed, is that with respect to increased capital requirements for banks, what matters the most is how it is required.

If bank regulators require banks to hold more capital, but keep the current risk-weighting system, that just means that The Infallible will be even more favored than The Risky, and since that would only increase the regulatory distortions… the result could only be increased instability.

But, if regulators instead require banks to hold more capital by eliminating the ridicule low risk-weights assigned to The Infallible, then The Risky agents of the real economy, like small and medium businesses and entrepreneurs, will be less discriminated, and therefore the real economy would stand a better chance of recovering… resulting in greater stability.