Category Archives: Moral hazard

By Edward Kane, Professor of Finance at Boston College and founding member of the hadow Financial Regulatory Committee

“We are a moving company not a storage company”
…Apocryphal Bear Stearns executive

Regulators define a financial institution’s capital as the difference between the value of its asset and liability positions. The idea that capital requirements can serve as a stabilization tool is based on the presumption that, other things equal, the strength of an institution’s hold on economic solvency can be proxied by the size of its capital position. That in turn assumes you can rely on those figures.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with New Economic Perspectives

Dave here (always wanted to say that!): I know Yves wrote about this yesterday, but it’s always worth getting Bill Black’s reaction on these regulatory matters – not to mention to further illustrate and amplify the FDIC’s conduct.

On March 11, 2013 the Los Angeles Times published a revealing article by E. Scott Reckard entitled: “In major policy shift, scores of FDIC settlements go unannounced.”

The article’s summary statement captures the theme nicely. “Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.”