FIXING one problem often creates another. The financial crisis
has produced a wave of regulation to make the banking system
safer. Banks are being required to hold more capital. They are
being pushed out of riskier areas of activity. This week
regulators in America and Britain gave more details of plans to
impose losses on bank bondholders to spare taxpayers the cost of
resolving failing lenders (see article). Such reforms are
needed. Banks must be better cushioned against losses and it
must be possible for them to fail.  But refashioning the banks
carries a cost. By making it more expensive to fund assets, both
because of higher capital charges and because bondholders will
bear more risk in future, the new rules are forcing lenders to
be pickier. European banks are under particular pressure. They
are huge, accounting for most lending (compared with 25-30% in
America’s more diverse system). The Europeans are more reliant
on flighty wholesale funding. Before the crisis, they financed a
lot of long-term assets