Breaking the Bank Narrative

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.

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.
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.)

-- CAV


Anonymous said...

I actually reviewed this book on my website. Since I worked in this industry for 8 years, and was laid off in 08 during the madness, Allison's is the only book that states the truth about what really happened. I was appalled but not surprise that when government uses the banking industry to finance their social experiments.

I have decided I will never work in transactional law again. And good riddance!!!!

Bookish Babe

Gus Van Horn said...


Thanks for mentioning your review.

One myth that has, so far, seemed to survive the crisis, is that real estate is a sound investment (at least at the level people were analyzing it before the bubble burst.

Perhaps Allison's book will help bury that one, as well.