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Fallout: The Financial Crisis

More capital may help banks in future

Sam Eaton Sep 3, 2009
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Fallout: The Financial Crisis

More capital may help banks in future

Sam Eaton Sep 3, 2009
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TEXT OF STORY

Steve Chiotakis: The global economy could be mending faster than earlier thought.
The Organization for Economic Co-operation and Development says this morning the recession may already be done in some places. The OECD forecasts show expansion in the third quarter as measured by Gross Domestic Product, GDP in the United States and the Euro zone. That’s more optimistic than its last update earlier this summer.

Part of the recovery involves getting banks more healthy. Indeed, many financials are back from the brink of collapse, and now the question is how to prevent that from happening again. The New York Times reports the Obama administration’s expected to release a proposal today that would change the way banks do business. Marketplace’s Sam Eaton has more.


Sam Eaton: Treasury Secretary Tim Geithner plans to release an outline today for overhauling international capital standards at banks. The message comes a day before G20 finance ministers meet in London.

The proposal’s key measure is a requirement that banks, especially the ones deemed too big to fail, would have to maintain larger reserves of capital. That would give banks a bigger cushion to weather any future financial crises. But it would also eat into bank profits by limiting the capital that can be used as leverage.

The proposal would impose even tougher standards for financial firms that engage in risky behavior like derivatives trading. The main challenge is to make banks safer without limiting their ability to make the loans that keep the economy and employment growing.

In Los Angeles, I’m Sam Eaton for Marketplace.

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