Not a Shocker

The big banks are strenuously objecting to the Basel proposals to strengthen capital requirements.

It seems that they think that it will cost, "13 of the largest banks $20 billion in annual earnings."

This is probably right. When things are going well, going in hock up to your eyeballs is a good way to maximize your profits, and since the executives of these banks are paid largely on the basis of year to year profits, and the taxpayer bails them out when they fail, it means that they may have to forgo that 5^th vacation for a year or so.

As to the dire consequences of such restrictions:

Standard & Poor’s said the new Basel rules could force some banks to change their business models.

“We expect smaller, deposit-funded retail banks to find it easier to comply with more stringent liquidity and capital requirements than larger wholesale-funded institutions with extensive trading operations or large loan books and securities holdings,” the credit rating company said in a report today. “For investment banks, the increase in capital requirements could be sizable.”

I don't know about you, but it seems to me that this is a plus, not a minus.

I still favor a small (20-50 basis point) Tobin tax on all financial transactions and leverage, as well as a larger tax on M&A activity, but that is in addition to much larger capital requirements.