Revisiting an incredibly expensive insurance policy

croaking cassandra

The Reserve Bank’s radical bank capital proposals –  markedly increasing required capital for locally-incorporated banks, in a country with (a) a low demonstrated risk of financial crisis and (b) high effective capital ratios by international standards anyway –  hasn’t been much in the news lately.  The Governor –  unelected, but sole decisionmaker on this –  his own –  proposal has presumably retreated to his high tower to contemplate.   He hired some carefully selected overseas academics to review bits of the Bank’s analysis, and we might expect to see their reports shortly (but recall the tight constraints on what they were allowed to look at, who they were allowed to talk to etc).

I was doing an interview yesterday on various aspects of the proposal, including making the point that what the Governor is proposing can be seen as –  on the Bank’s own numbers – an incredibly expensive insurance…

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