Tuesday, 16 September 2008

Capital? Moroni

Warning. You are now entering 'Capital is anything you want it to be' land, which is quite close to Moroni. Well, that may be a bit unfair. In the slightly less sensational prose of Reuters, US regulators propose cutting bank goodwill deductions. More background on this and other regulatory changes is in the New York Times here.

I'm all in favour of flexbility in times of crisis, so I support (even as I question the legality of) the FED's suspension of section 23a. I think anticyclical capital requirements are a good idea. But the deduction of goodwill is vital to stop acquisitive banks growing too fast. Ah but wait, someone has to buy WaMu. Then there's Morgan Stanley. And Goldman. And... The goodwill change will make all of these deals a lot easier.

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