Regulations Based on Flawed Assumptions May Make Banks Riskier
The response to the financial crisis was a raft of new regulation aimed at reducing the risks posed by financial institutions. But now with strict new liquidity and leverage ratios, increased capital requirements, and restrictions on banking activities versus investing activities, are banks safer than they were prior to the crisis? In a paper published for the September 15 and 16, 2016 BPEA conference, Harvard’s Natasha Sarin and Larry Summers try to answer that very question.