I've believed for a long time that the Fed will soon have to lower the capital requirements for banks.
Reserves at banks are falling and will likely continue to fall. But the Fed needs the banks to keep lending. Otherwise the economy will slow down even more quickly. Solution: lower the capital requirements for banks. A good idea? Of course not, but the Fed is determined to do ANYTHING to prevent a slowdown.
From Bloomberg: "The median Tier 1 level at the 10 biggest U.S. banks fell to 7.3 percent of risk-weighted assets at the end of 2007, from 8.7 percent a year earlier, according to the analysts. The ratio hasn't been as low since the Zurich-based bank began tracking in 1990. The minimum for a 'well-capitalized' rating from regulators is 6 percent. The assets are calculated by weighing each type relative to its chance of default."
Fake Ben Bernanke
FakeBen.com
FakeBen is a blog to monitor the Fed and its actions and encourage community participation. At FakeBen, we believe that the Fed policy of the last two decades has created a credit bubble as large as that created in the 1920s. This bubble will lead to either inflation, a recession, or both.
