Ending Too Big To Fail: What Is The Proper Role For Capital And Liquidity
By: Sujit Chakravorti
Presented to U.S. House of Representatives Financial Services Committee, Washington, DC
Capital requirements are an important tool to maintain financial stability. But as I will elaborate upon, there is significant academic disagreement on the optimal level of capital. Before elaborating upon the post-crisis regulatory changes along with the economic literature on the costs and benefits of capital regulation, I will explain briefly why banks are vital to the U.S. economy.
Identifying and setting the appropriate levels and types of capital for our nation’s banks, big and small, is a worthwhile and challenging policy objective that we have grappled with since the 1800s. While we may never know the exact answer, I urge the Committee to continue examining solutions to make our financial system more secure.