A Better Way to Control the Banks
What gets lost in the discussion is that Dodd-Frank, properly executed, would help to create the conditions for breaking up large and complex banks. That’s because the banks would face rising regulatory costs, which means they might well be worth more to investors if taken apart.
.. Even so, the capital requirements are not strong enough, in part because they do not require banks to fully account for potential losses from the trading of derivatives, a multitrillion-dollar activity.
Recent data provided by the banks to the Federal Reserve show that capital at big American banks recently averaged a healthy 13 percent of assets. But if derivatives and other holdings were fully included — as is required under international accounting rules but not under American ones — capital would come to a feeble 5.7 percent.