THE STASH SEPTEMBER 6, 2009
Treasury's proposal to increase capital requirements on banks around the world won't be loved by the financial sector, but the rest of us should give it strong consideration.
There's little chance more capital would have prevented the crisis, but it would have made the ride down a lot less bumpy. According to a recent analysis by Andrea Beltratti and Rene Stulz, banks with bigger capital cushions, more equity, and more liquid assets -- all part of the "core principles" in the Geithner proposal -- suffered the least both immediately before and during the crisis.
Geithner wants the stricter requirements in place by 2012, but that seems ambitious. Basel II, the current set of recommendations for capital requirements around the world and what the Treasury plan would update, took 10 years to hammer out. And though they were finalized in 2004, the U.S. has yet to adopt them -- let's hope the same thing doesn't happen this time. For more on this, check out a very good analysis by Reuters' Huw Jones.