Editorial Board
Fragile Banks Won’t Make the US or Europe Stronger
Officials should work together toward greater resilience, not engage in a race to the bottom.
Big banks need strong foundations.
Photographer: Alex Kraus/BloombergLess than 15 months after the world’s most recent banking crisis, regulators in the US and Europe are already poised to roll back reforms aimed at reducing the risk of further financial disasters. It’s a serious mistake.
At issue is where banks get their money. Most is borrowed from depositors and other creditors. If it’s not paid back on time, broader distress can ensue. The rest, known as equity or capital, comes from shareholders who stand ready to absorb losses. The more of the latter banks have, the better they’re able to inspire confidence and keep lending even in the worst of times.