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November 10, 2009 2:00 am
From Mr Charles Taylor.
Sir, Clive Crook is right to advocate for comprehensive financial reform (“Congress misses the point of reform”, November 2). Despite strong returns in equities over the summer and autumn, most of the root causes of the financial crisis have not yet been addressed by Congress. Creating a fair, competitive and stable financial system for the 21st century should be an urgent priority.
Mr Crook is also right to suggest that bank capital requirements are crucial to the debate - a point reinforced by a recent Pew Financial Reform Project study. It found that higher capital requirements for the US banking industry are likely to have less of an impact on lending than has beenasserted. Indeed, our analysis finds that if capital requirements rose on average from 6 to 10 per cent, rates on a typical bank loan might rise by only 0.2 percentage points, assuming modest tightening of loan terms.
While the debate continues in Washington about the appropriate size of capital increase, the findings of our report indicate that Congress and the administration can move forward, confident that banks can move to a new capital regime without significant disruption to consumer lending.
Director, Pew Financial Reform Project,
Washington, DC, US
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