Building Banks for the Future

Question: How much higher should the capital ratios of big banks be relative to small banks? (Felix Salmon, Reuters Finance)

John Allison: I don’t think the capital ratios of big banks should be higher than small banks. In fact, my experience is exactly the opposite, the small banks are the ones that tend to be the most under capitalized and particularly start-up small banks. But I think everybody’s capital ratios ought to be higher. I think that government policy has encouraged banks to have lower capital than they should. One of my cures, long term, for the industry, it’s not my optimal cure, but it’s a more practical cure, would be to set a goal for banks to have 20, 25% equity, give them a long term time to do that and shift the risk from the taxpayers back to the shareholders of the bank. It would also answer the two big, the failed question in that either Citicorp could raise that kind of capital or not, and if they couldn’t, then they would have to shrink. Now, it’s very important that be combined with several things. One, we need to reduce the FDIC insurance back to the $100,000 level to take out that risk. Secondly, we need to make it explicitly clear the Federal Reserve can’t bail out General Electric or non-banks because banks have to have a special proxy if they have to have a higher capital levels and it should be against the last for General Electric to be bailed out by the Federal Reserve.

And finally, you have to eliminate about 90 or 95 percent of the regulations that impact the industry because the industry can’t afford to have higher capital levels and a huge regulatory burden. So we ought to shift the risks back to shareholders, 20-25% of pure capital for all banks in a long-term systematic fashion, but coordinated with substantiated reduced regulation, so the industry can be competitive and healthy.

Question: Should money center banks be broken up? (Robert Lenzer, Forbes)

John Allison: Well, my general posture is that I am opposed to any trust. On the other hand, if the government has determined some institutions are too big to fail, then they have to be broken up because it creates huge market distortions, particularly in the good times. Because anybody that has an implicit government guarantee can afford to take dramatically more risk. So what’s going to happen, if we don’t break up the institutions that are too big to fail, then on the next cycle, when the good times comes, they’ll come, they’ll be taking enormous risk and then the next cycle will be a really, a disaster. I personally don’t believe they’re too big to fail. I think they should be allowed to fail and there ought to be a process where they fail just like any other company and then you wouldn’t have to break them up. The capital requirement that I described in the last, answer to the last question, really would help deal very effectively with this issue.

How can we manage banks that may be too big to fail?

Straight millennials are becoming less accepting of LGBTQ people

The surprising results come from a new GLAAD survey.

Photo credit: Clem Onojeghuo on Unsplash
Culture & Religion
  • The survey found that 18- to 34-year-old non-LGBTQ Americans reported feeling less comfortable around LGBTQ people in a variety of hypothetical situations.
  • The attitudes of older non-LGBTQ Americans have remained basically constant over the past few years.
  • Overall, about 80 percent of Americans support equal rights for LGBTQ people.
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Are these 100 people killing the planet?

Controversial map names CEOs of 100 companies producing 71 percent of the world's greenhouse gas emissions.

Image: Jordan Engel, reused via Decolonial Media License 0.1
Strange Maps
  • Just 100 companies produce 71 percent of the world's greenhouse gases.
  • This map lists their names and locations, and their CEOs.
  • The climate crisis may be too complex for these 100 people to solve, but naming and shaming them is a good start.
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New research sheds light on a possible cause of autism: processed foods

The more we learn about the microbiome, the more the pieces are fitting together.

Photo: Jeffrey Greenberg/Universal Images Group via Getty Images
Surprising Science
  • A new study from the University of Central Florida makes the case for the emerging connection of autism and the human microbiome.
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