– James Saft is a Reuters columnist. The opinions expressed are his own. –
If we want a world with safer banks, we need to be prepared for the consequences; lower growth over a painful medium term but the promise of making it up over the long run as we suffer less devastating financial blowups.
A banking system forced to operate with more capital and a higher proportion of safe, liquid assets is one that will shrink and charge more for credit, potentially retarding growth as we transition to a different mix of financing.
This may also imply better returns to credit investors outside of banks, but perhaps lower returns for equity.
The prize for most thought-provoking speech by a central banker of 2009 quite possibly goes to David Miles, of the Bank of England, who this week delivered an address considering the implications for the economy and monetary policy of changes in the financial landscape.
“The result of pursuing policies that significantly reduce the chances of another banking crisis like the one we have seen is likely to be a smaller banking sector,” Miles said.