This Generation’s Defining Debate: Bank Leverage?
Posted at 9:45 a.m. on Sept. 4
“Every age has great debates on its defining questions. Sometimes these disputes are on a grand scale: capitalism versus communism,” writes Simon Johnson. “The defining conflict of our time is over what might seem to be a relatively arcane and technical detail: leverage, meaning the extent to which financial institutions should be allowed to borrow relative to their total balance sheets.”
“What separates the two sides is a well-defined bone of contention: the extent to which banking regulators should rely on a simple leverage ratio… Our debate concerns bank capital and the extent to which financial-sector executives who run megabanks should be allowed to gamble, even when they get the upside and the downside is someone else’s problem, with this asymmetry exacerbated by leverage.”