DECREASE BANK CAPITAL REQUIREMENT?

Yesterday in The Daily Telegraph Peter Spencer of Ernst & Young suggested that the capital requirement for banks be decreased from 8% to 6%. He suggested this would spark a rise in the number of interbank loans and thus ease the current "credit crisis".

What will he suggest if this doesn't work? A 0% capital requirement? Is this the ultimate goal of the engineered "credit crisis"?

I do not believe that this crisis appeared out of nowhere undetected. Something like the saga surrounding Nick Leeson I can believe occuring undetected. But in this crisis major banks are losing billions.

The system is a lot closer to 0% capital requirement anyway. Any bank notes declared as capital are worthless in themselves, and can only be exchanged for yet more paper with different coloured ink on them.

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From http://www.larouchepac.com/news/2007/12/15/banks-are-insolvent-so-ease-rules-auditor-says.html

Banks Are Insolvent, So Ease the Rules, Auditor Says
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December 15, 2007 (LPAC)--Auditors are in a tough spot these post-Enron days, with the demise of Arthur Andersen on everyone's mind. If the auditors refuse to rubber-stamp the banks' fictitious valuations, the banks collapse,-- but if the auditors allow the fiction, they run the risk of being severely punished for malfeasance down the road. Hence the suggestion by Ernst & Young Item Club's Peter Spencer in today's London Telegraph, that the British "government must suspend a set of key banking regulations at the heart of the current financial crisis, or risk seeing the economy spiral towards a future that could `make 1929 look like a walk in the park'."

Spencer tries to blunt the clear meaning of his statement, by claiming that the banks are refusing to lend to each other, not because they are insolvent, but rather that they are being prevented from lending to each other by overly restrictive government regulations! The regulations he blames are the capital requirements set by the international Basel agreements, which require the banks to have an 8 percent capital reserve, which Spencer said should be cut to about 6 percent.

In reality, the idea that a mere 2 percent reduction in capital requirements would head off a crisis that would make 1929 look like a "walk in the park," is absurd, as both Spencer and the Telegraph know. What the auditors are really saying, is that the banks are already insolvent, and that the capital requirements must be lowered so that the auditors can continue to certify their books. Which is only an indirect way of admitting the banks are indeed insolvent, despite his denial.