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James I. Kaplan quoted in article “How We’re Tackling Systemic Risk in the Financial System Today”

Radical Compliance

Below is an excerpt:

Banks now hold twice as much capital in reserve (as a percentage of assets) than they did before the financial crisis, Kaplan said. That has led to slower profit growth, and “certainly less return on equity” because banks need to keep more equity salted away as reserves.

Kaplan stated the situation succinctly, and I don’t dispute that it isn’t ideal for banks—but as I’ve argued before, that situation is what Dodd-Frank was meant to achieve. We had unchecked growth in lending in the 2000s, which led to banks with balance sheets full of worthless assets. We then created a regulatory climate that essentially forces banks to drive down the highway of commerce with the parking brake still on. They grow more slowly, and less profitably.


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