Would you get into a taxi if you knew the driver was not bound by traffic rules? Would you do business with a bank that was not regulated? Banks with a low level of capital and inadequate internal controls are viewed with suspicion: investors ask for higher risk premia and the banks thus face higher funding costs.
Banks need people’s trust to do business, but as a result of the crisis they have lost a lot of trust. They should bear this in mind when complaining about regulation. Now, do bank rules harm the economy? This question mainly, but not only, focuses on capital requirements.