Changes in policy should accomplish three things:
(1) It should make sure that all parties in the lending chain have “skin in the game.” While reputational risk mitigates against bad behavior, there is no substitute for financial incentives.
(2) It should make sure that all parties in the lending chain are subject to federal supervision. This will reduce regulatory arbitrage.
(3) It should do what it can to improve disclosures throughout the lending chain. Borrowers must be better informed as to the consequences of their lending choices (although this will be difficult); ratings must be consistent, and securities must be more transparent.
Monday, November 26, 2007
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1 comment:
I believe that this would be good but the government still does need to have limited accountablity with the banks. It doesnt work for the Russian Soviets. People do need to have a recognition of what they are getting into.
James B
Money and Banking Class
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