Ignore the Bank Lobby, Regulators. It’s High Time For Banking Reform.

Kim Schoenholtz

By Kim Schoenholtz and Stephen Cecchetti

Less than a year ago, runs on regional banks led to the second-, third- and fourth-largest bank failures in U.S. history — First Republic, Silicon Valley Bank and Signature Bank. Yet the powerful banking lobby is once again aggressively resisting reforms that would make the financial system both safer and more efficient.

This time, U.S. authorities must resist and enact their modest proposals for reform without compromise.

The primary debate is over regulators’ call to raise capital requirements — that is, increase the fraction of banks’ funding that comes from shareholders (equity) rather than from depositors or bondholders (borrowing). Bank advocates argue that this equity is somehow idle, so any increase in required capital wastes resources and depresses lending, reducing the ability of households and businesses to finance essential activities.

Read the full The Washington Post article.
Kim Schoenholtz is Clinical Professor Emeritus at NYU Stern.