Bank Regulators Are Often Clueless

Bank regulators are a busy bunch these days, whether active in the U.S. or in Europe.

They differ only in their thinking of how bank assets can be used for proper capital and liquidity. But they’re equally in the dark about the importance of true diversification of bank assets, to avoid financial calamities.

It’s not the total amount of capital cushion but the non-dependency of the assets in the cushion.

And, most importantly, the way those assets are evaluated in illiquid markets. In other words: Never use mark-to-market accounting under such unstable conditions. (See the Earl J Weinreb NewsHole® comments.)