Treasury: Stronger Capital, Liquidity Standards

The U.S. Treasury has telegraphed its objectives for reformed international capital standards (emphasis added):

The global regulatory framework failed to prevent the build-up of risk in the financial system in the years leading up to the recent crisis. Major financial institutions around the world had reserves and capital buffers that were too low; used excessive amounts of leverage to finance their operations; and relied too much on unstable, short-term funding sources. The resulting distress, failures, and government bailouts of these firms imposed unacceptable costs on individuals and businesses around the world. Going forward, global banking firms must be made subject to stronger regulatory capital and liquidity standards that are as uniform as possible across countries. Today the Treasury Department set forth the core principles that should guide reform of the international regulatory capital and liquidity framework to better protect the safety and soundness of individual banking firms and the stability of the global financial system and economy.

This is good stuff. Hopefully Secretary Geithner’s people will be able to get something like this done, and health care won’t prove to much of a distraction for the Administration — hopefully.

The bulletin claims that the standards should be agreed formally by the end of 2010, and regulations implemented by the end of 2012 — which unfortunately leaves plenty of time for another crisis or two to unfold, especially with the Fed and LIBOR rates being as easy as they are.

URLs:

http://www.treas.gov/press/releases/tg274.htm