Irreverent Economics

Stephen Cecchetti, chief economic adviser to the Bank for International Settlements stated as reported by the FT

banks were claiming that new liquidity rules would force them to swap large quantities of high-yielding loans for low-yielding government bonds, which would have an impact on their profitability and lending. Instead,  they could comply with the rules by lengthening the maturity of their liabilities so they better matched those of their assets at much lower cost.

 

banks assume investors would demand the same returns on new tranches of equity capital when this equity would make banks more resilient, lowering risk to equity holders and the cost to banks.

the warnings of high costs relied on banks’ estimates that the new rules would reduce credit growth and economic growth severely. “We must always keep in mind that one of the causes of the crisis was that credit growth was too fast,

hard to disagree with this