Bove on Banks

I happened to read this book right after The Bankers' New Clothes. Bove is no friend of the current role  of regulation and he believes that focusing on equity may be no simple cure because of the difficulty of measuring the risk of assets. This is not a academic book, but the work of bank analyst.

What he presents is a microeconomic perspective of someone who know the nuts and bolts of banks and what the impact of more regulation will have on the credit system, He argues persuasively that banking regulation generated the unintended consequences of a fragile system that created the financial crisis. The new regulation on the post-crisis period will have the unintended consequence of destroying small banks, make lending more expensive, and restrict credit to those who need it most.The current regulation will only increase the size of the large banks, through making snall banks less proftiable even though the stated policy is that we want to move away from the systemic risk of too big to fail banks. We did not need more regulation. We needed to enforce the existing regulation, and in some cases drop the regulation. He is no fan of big banks but emasculating our biggest banks to score points with voters does not make sense.

Bank regulators, politicians, and the large barks have failed us. This is the same message as the Bankers' New Clothes, but the solution is different. The "New Clothes" approach is increasing equity. The Bove approach gets into the mechanics of the rules that need to be overhauled if you want a chance to have equity work effectively.