Thursday, June 21, 2012

A Wicked Question on Bank Regulations

If bankers do as Mark Twain says, namely “lend you the umbrella when the sun shines and wanting it back when it rains”, and all bank crisis ever have resulted from excessive lending to what was perceived as “not risky”, and any perceived risk has already been considered in the interest rates and the amounts of the loans, what is the logic behind allowing banks to hold less capital requirements when they engage in what is perceived as “not risky” as current bank regulators do?