USA regulates USA — whoops!

Government regulations — numerous ones I might add — are standing in the way of the Treasury plan to recapitalize U.S. banks:

The problem is this: Under existing rules, banks cannot count the
Treasury Department’s investment as part of their core capital, the
foundation of money that supports a bank’s operations. The very goal of
the plan was to buttress those foundations, which have been eroded by
recent losses, undermining the stability of the banks.

The Fed has changed its rule to accommodate Treasury policy and so has the OCC.  But will the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and state banking regulators follow suit?  Sooner or later, yes.  Get this: "All have their own capital standards and it remained unclear early this
afternoon how many of those standards might need to be adjusted."  I vote on the state authorities to come in last.


The new rule that will make it legal will be titled the "Marx to Market" law.

Why inject money at all? Why not just declare the assets worth more?

Same thing happened with the GSEs, cumulative preferred is statutorially excluded from their definition of core capital, but that's what treasury issued to the enterprises.

Welcome to our company which sells all kinds of maple mesos.

It is enlightening!

Comments for this post are closed