Wednesday, February 20, 2013
Investor's Business Daily recently interviewed John
Allison (HT: HBL) on the financial
crisis. Allison, the former CEO of BB&T and now the head of the Cato
Institute, made it clear that it was government regulation of banking -- and
not greed or deregulation -- that caused the crisis. Here is a sample:
The SEC also had a hand in the crisis by forcing investment banks to use so-called Basel accounting rules to figure their capital requirements.I'm glad to see the truth about this mess coming to light, especially in the form of Allison's new book on the subject, which the article mentions: The Financial Crisis and the Free Market Cure. (See last fall's Objective Standard for a review by Ari Armstrong.)
The rules were based on math models using rosy Fed economic assumptions. Banks lowered reserves and "became more and more leveraged," Allison said.
At one point, he says, the SEC ordered SunTrust to lower its loan-loss reserves. The bank's chief credit officer was fired for building reserves.
"This affected the behavior of every credit officer and materially brought down loan-loss reserves in the industry," he said.