Here's the background:
So here's the problem. Suppose banks hold £2 of equity on assets of £100, a 2% ratio. Suppose they are required to hold 20% of equity. Easy! Just reduce lending to £40! Goodhart again:
The suggested answer:
Monday, 17 March 2014
The problem in requiring banks to have more equity: Charles Goodhart has the answer
My friend Matt makes a very good point taken up here by Charles Goodhart in his review of Adamti anad Hellwig's book, in Economica, 2014, V81, pp. 390.
Here's the background:
So here's the problem. Suppose banks hold £2 of equity on assets of £100, a 2% ratio. Suppose they are required to hold 20% of equity. Easy! Just reduce lending to £40! Goodhart again:
The suggested answer:
Here's the background:
So here's the problem. Suppose banks hold £2 of equity on assets of £100, a 2% ratio. Suppose they are required to hold 20% of equity. Easy! Just reduce lending to £40! Goodhart again:
The suggested answer:
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