Commentaries
Now raising intellectual capital
The capital games that banks play
Treasury Secretary Timothy Geithner’s call for the global banks to set aside bigger capital cushions to better absorb losses on souring securities and ailing loans is a good idea. But that alone won’t be enough to prevent another crisis.
Regulators must also clamp down on the kind of AIG-engineered deals that legally enabled German, French, Dutch, Danish and other European banks to dodge existing capital rules and free up some $400 billion on their balance sheets.
It has become all too popular to characterize last year’s bailout of AIG as an attempt by the federal government to funnel about $50 billion to Goldman Sachs and a handful of other banks.
But the collapse of AIG would have caused even greater hardship for dozens of largely unknown European banks that entered into so-called “regulatory capital relief” transactions with the giant insurer.
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The Wall
