Capital and Liquidity Requirements: April 2010 Archives

by Matthew Richardson and Nouriel Roubini

The economy is in ruins. Unemployment is at levels not seen in decades. The public seethes. Congressional hearings call for the heads of bankers. Bankers lobby behind the scenes. Politicians fight over the seeming minutiae of regulatory reform.

The year might sound like 2010, but it was actually 1933.

As President Obama visits the city that was at the core of the crisis - and the city that is key to our revival - history can teach us a valuable lesson. Namely: In the wake of a massive shock to the system, stronger rules of the road for large institutions are a prerequisite for sustained recovery.

Read the full opinion editorial at NYDailyNews.com

A number of academics and policy makers have favored the forced debt-for-equity conversion bonds or contingent capital. With any regulation, the key is to know strengths and weaknesses. The strengths of contingent capital have been mentioned a number of times here and there (for most recent FT article, see http://www.ft.com/cms/s/0/0310ebf4-4342-11df-9046-00144feab49a.html). Here, I outline some contingencies for contingent capital that regulators must keep in mind.