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When More Financial Regulation Is Not Better

Recently proposed rule changes to increase large banks' capital requirements may do more harm than good. While we do not want banks to be so thinly capitalized that small losses and accidents can precipitate panics, we also must recognize how more capital can facilitate mismanagement.

CHICAGO – Partly in response to the banking failures of March 2023, US regulators now want to impose higher capital requirements on banks with over $100 billion in assets. But this is a puzzling choice, considering that some of the most egregious risk-taking recently has been found among smaller banks.