How to Regulate Banks and Other Financials

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At the Treasury meeting, I commented that the insurers were better regulated for solvency than the banks. One of the reasons for that is that they do harder stress tests, and they look longer-term.

So, if one is trying to regulate banks for solvency, there are two things to do:

•Set risk-based capital formulas so that few institutions fail.
•Make it even less likely that larger institutions fail.

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