The Group of 20 wants banks to have more capital. As one element of a broad range of regulatory reforms, this is unexceptionable. However, if it is to be the main reform, with others playing only supporting roles, we should worry.

A number of banks went directly from being well capitalised to default. Part of the problem lies with the accounting, which allows banks to hide a variety of losses, and part with the regulatory incentive to delay recognising losses. But the bulk of the problem lies with the sheer magnitude of the losses in a systemic crisis such as the current one. The levels of capital required to protect banks fully from failure would be extraordinary.