A winter storm is hitting the northeast less than two weeks after Hurricane Sandy crashed into the New Jersey. And it made me think of the new banking regulations.
The early winter storm now afflicting the east coast seems especially cruel. People still waiting for power have to shovel snow and then go into their cold houses. And it will severely hinder efforts to recover from Sandy. Utility trucks can’t fix downed lines if they’re sliding into the ditch themselves.
And while winter storms are common, hurricanes like Sandy don’t hit Jersey and New York that often. This was the first hurricane to slam directly into the Jersey shore in over 100 years. Life has gotten a lot more complex since then: our cities are larger, our amenities require more power, and everybody needs to charge their smart phones.
Since life is so complex, our emergency response needs to be multi-layered and sophisticated, if we’re going to keep power, gas, healthcare, sanitation, and public transportation going. Simple ideas like evacuation and rescue won’t work if thought isn’t given to providing food, water, and public safety to those in the shelters.
The same is true for banking in the face of a financial crisis or economic downturn. There’s been some criticism of the new bank regulations: they’re too complex; we should just go with a simple leverage ratio for all our banks to keep our finances safe, and reinstitute Glass-Steagall. But banking, like life, is a lot more complicated now than it was in the ‘30s. What worked 80 years ago won’t work today.
For every complex problem there’s an answer that’s clean, simple, and wrong. The new bank rules need to reflect current financial reality.
Douglas R. Tengdin, CFA
Chief Investment Officer
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