The financial system needs more capital and less complexity, says Rana Foroohar in an opinion piece for the Financial Times. The core lesson from the 2008 financial crisis is that too much debt and leverage, combined with too little high-quality capital, always ends in tears. While there are arguments against holding more capital against risk, such as reduced profitability and pushing risk into shadow banking, Foroohar disagrees. She believes that risk has already moved into the less well-regulated non-bank sector post-2008, indicating a need for more regulation of shadow banking. Furthermore, the notion that increasing capital will hurt vulnerable individuals and minority groups is misleading, as the majority of mortgage market loans fall outside the new rules and non-banks make more loans to minority families. Instead of arguing against more regulation, Foroohar supports the idea that the financial system is better for ordinary people when it is simple and boring, with more capital in place.
Article source: Financial Times