Explaining the fuss over equity capital requirements

Those who have been paying even peripheral attention to the debates over financial reform since the bailouts have doubtless heard about “capital requirements” and “equity capital” without necessarily knowing what those terms mean. In general, this ignorance is by design. The megabankers and their friends have deliberately confused the conversation by using incoherent phrases like “hold capital.” Their goal is to create the perception that a tradeoff exists between a bank’s resilience and its ability to make loans. There is none. So why do they press the point? It’s all about the bonuses: banks that are more resilient would not be able to pay managers and shareholders nearly as well as the banks we have now.

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