How much equity do banks voluntarily choose?

croaking cassandra

The Reserve Bank Governor is proposing that banks should have to fund a much larger share of their balance sheet with equity rather than debt.  So weak is our system that one unelected person –  on this occasion, one without much specialist expertise – can, more less on a whim, compel bank shareholders to either put billions of dollars more into their businesses, or to markedly downsize those businesses (most probably some combination of the two).    So long as the Governor jumps through the right procedural hoops, there are no appeals, and there is little formal public accountability.     Perhaps political pressure will mount on the Bank?  In these circumstances, one can only hope so.

Today I wanted to focus on a couple of strands in the arguments often used by academics and regulators to support the case for higher minimum capital requirements.   (Upfront I should say…

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