What’s So Radical About a Safer Financial System?

April 10 (Bloomberg) -- Momentum is building in Washingtonfor a reform that would make extremely large banks lessthreatening to the U.S. economy. Opponents are calling it“radical.” What’s actually radical -- and dangerously so -- isthe behavior it seeks to change.

Two senators, Democrat Sherrod Brown of Ohio and RepublicanDavid Vitter of Louisiana, plan to offer a bill that wouldrequire banks to finance their businesses with more equity fromshareholders, as opposed to money borrowed from creditors. Anearly draft, which takes up all of five pages, sets a simpleminimum of $1 in equity for each $10 in assets -- a measure fareasier to understand and enforce than the complex, risk-weightedcapital ratios that global regulators currently favor. For thelargest banks, the requirement would be $1.50 per $10 in assets,or 15 percent.