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Opinion
Matt Levine

A Victory in the Battle To Make Banks Boring

If you like your banks boring, well capitalized, but also contributing to the real economy, you will be cheered by yesterday's quarterly review from the Bank for International Settlements, which contains a special feature on "How have banks adjusted to higher capital requirements?"

If you like your banks boring, well capitalized and also contributing to the real economy, you will be cheered by yesterday's quarterly review from the Bank for International Settlements, which contains a special feature on "How have banks adjusted to higher capital requirements?" That's a much-discussed question with at least two possible bad answers. The banks argue against higher capital requirements by saying it would force them to cut back on lending. I wonder whether higher (risk-weighted) capital requirements will lead banks to just monkey with the models for their risk-weighted assets.

But the BIS's answer is pretty solidly the good answer: Banks have increased capital ratios by retaining more earnings, without cutting back on lending or monkeying too much with the models: