Banks can meet the new standards through earnings retention, capital raising, or reducing their riskier exposures that are not necessarily associated with the granting of credit to ultimate borrowers. Will our response to the recent financial crisis be adequate?
The answer to this is “yes” but a qualified “yes” as there is much more to be done and the crucial second step of the policymaking process has yet to take place. I refer here to implementation and rigorous supervisory follow up. We must remember that memories fade quickly.