Former Federal Reserve Chairman, Alan Greenspan said regulators may need to compel banks to raise capital levels by as much as 40 percent, saying that’s a more effective way to ensure stability than new regulatory rules targeting risk. For the Latest information regarding World and Stock Market News, make sure to visit the Most Exclusive and In Depth newsletter website at: http://www.wallstreetgrand.com/.
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Former Federal Reserve Chairman, Alan Greenspan said regulators may need to compel banks to raise capital levels by as much as 40 percent, saying that’s a more effective way to ensure stability than new regulatory rules targeting risk.
“The most pressing reform that needs fixing in the aftermath of the crisis, in my judgment, is the level of regulatory risk-adjusted capital,” Greenspan said in a paper prepared for a Brookings Institution conference today. “Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning.”
Banks may need to hold capital equal to 14 percent of their assets, compared with about 10 percent in mid-2007 before the financial crisis, Greenspan said. Lawmakers are considering an overhaul of banking regulation, including the biggest revamp of the central bank’s powers since its creation in 1913. Such changes may include creating a systemic-risk regulator and giving the government the ability to dismantle failed firms. The largest U.S. banks may also need to hold extra debt that can be converted automatically into equity capital if their capital levels dwindle, Greenspan said.
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