When Republicans oppose bank regulation, I think they’re often guilty of misplaced laissez-fairism. Banks currently enjoy explicit and implicit federal guarantees. If the federal government is, in effect, insuring banks, the federal government is within its rights to place reasonable restrictions on banks’ risk-taking.
So I’m not surprised to see conservative Sen. David Vitter leading the GOP end of the charge to place stricter reserve requirements on banks. Politico reports:
In a letter to Federal Reserve Chairman Ben Bernanke, Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) warned that a Federal Reserve proposal released in December on capital standards “misses a huge opportunity to address the too-big-to-fail issue.”
The senators, who are both members of the Senate Banking Committee, wrote that they want the Fed to go beyond the minimum capital requirements laid out in an international agreement on capital, known as Basel III, and force the largest U.S. lenders to meet a tougher standard.
“The surcharge on the megabanks should be high enough that it will either incent them to become smaller or will help to ensure they can weather the next crisis without another taxpayer bailout,” the senators wrote in a letter dated Aug. 6.
Like a cap on bank size, which has garnered tidbits of free-marketeer support, higher reserve requirements have the virtue of being basic, simple rules that don’t leave as much up to the discretion of regulators. This hopefully limits the ability of the craftiest lobbyists to game the system or of incompetent regulators to blow things up.
