Last banking class notes

Interstate banks provide convenience to customers. Lower cost due to economies of scales. More competition in banking sectors.
Drawbacks of branching of banks:
(1) we see a draining of deposit funds from local communities to other parts of the country.
(2) Banks become much larger and resemble "too big to fail".

Regulation in financial sectors may be the clearest test of how regulation works in a market. In other words, if regulation works anywhere, it must be the case that it works best in terms of financial market. Reason: Compared to other sectors, transparency in financial market is higher. Banks report vast quantities of data to regulators, and it is very easy for regulators to check those numbers.

Why is financial regulation doomed to fail?
(1) Ordinary people don't care about risks in their banks---- most people cite location as the most important reason for choosing a bank.
(2) Standardization: getting a mortgage or a loan is the same process no matter the banks are. Different banks evaluate them in the same way, following the guide lines of the Fed. The influence of the Fed goes beyond banks' balance sheets because banks follow the guidelines of the Fed.
(3) Less competition--regulation puts barrier in the way of starting a new bank.
(4) Less choice--can't share its own currency. (But most banks still provide checking account, which is private money, consisting a large chunk of the whole money supply in the economy.)

The creation of derivatives doesn't eliminate the risks. What we should care about is to when risks will explode and harm other people. It's not possible to prevent crisis from happening.

The point of regulation is to protect the sanctity of the payment system.
How to regulate
Bank of International Settlements:central bank to all the world's central banks
Issuance of guideline: Basel I, II and III. Suggested guidelines that are supposed to be adopted by central banks.

The most important thing that BIS does is to set up the capital adequacy requirement to prevent banks from recklessly investing with insufficient risk capital.

Basel I: any government issued securities are 100 percent risk-free. any country securities are safe.
A                                L
Greek bonds           deposits
100                          100
Capital requirement for the most risky lending: commercial loan 8% capital requirement (100% risk weight)
Mortgage loans are deemed to be safer: capital requirement is 4% (50% risk weight)
GSE securities: capital requirement 1.6% (20% risk weight)

For a bank, if it originates a mortgage, sells it to Fannie, (btw get a fee for selling the mortgage), and buys it back in a bundle of MBS, that very same mortgage would only require 1.6% of the capital requirement.

NOW the capital requirement for all mortgage is 1.6% requirement, including prime and subprime mortgages.
Commercial banks get money in 3 ways from this process: interest on mortgage, fee for selling mortgage to the Fannie in the first place, a lower capital requirement

SPV: off-balance sheet activities to avoid any capital requirement. (Bearstone)

Investment banks were not totally reckless:
(1)double A and triple A mortgages were demanded the same capital requirement, and double A mortgages had a higher yield, but most investment banks still chose triple A mortgages
(2) greed is about making money rather than losing money
(3) the problem may be overconfidence
(4) they bought CDSs for protection

In a free market, banks will use different algorithms to evaluate the mortgages, there may even be speicalization. Besides, with support of FDIC, banks will compete for deposits and tend to self regulate better. The bank runs are disciplining them.

Summary of The Problem of Transaction Costs

I.                    The problem to be examined

This paper is about negative externalities of one business firm upon others. The traditional economics analysis, developed by Pigou, contends that the firm is liable for the damage and that the firm should either pay tax of equivalent amount of the damage or close the factory in that area. But professor Coase argues in this article that such analysis is inappropriate and often leads to undesirable outcomes.

II.                 The reciprocal nature of the problem

The traditional approach focuses on how to restrain the negative externalities of the firm, but this analysis is wrong because the external cost is not simply a cost produced by the firm and born by the victim; instead, the problem is of reciprocal nature. The real question is to decide whether one group is allowed to harm the other or vice versa. The proper way of analysis is to determine in total and at margin whether the value of protection is worth the cost of restraining the firm.

III.               The pricing system with liability and damage

When the firm has to pay all damage it caused and the transaction cost is zero, there will be a desirable solution. If the firm that imposes negative externalities is liable for the damage, it will take into consideration the marginal social cost of its production, and based on cost-benefit analysis, it will either reduce production or pay to victim as compensation. On the other hand, the victim will reach a bargain with the firm based on his examination of negative externality cost and benefits. The both parties have to consider the opportunity cost, and if the cost is greater than the value they can get, then in a competitive market, they will reallocate the resources and reach a mutually beneficial outcome. The outcome of the bargain depends on preferences and negotiation skills of two parties, but the net social gain is the same.

IV.              The pricing system with no liability and damage

If the damaging business is not liable for the damage it has caused, but the transaction cost is zero, then the allocation of the resources will be the same as it was when the firm was liable for the damage. In this case, the victim will pay the amount no larger than externality cost to the firm for less damage, and the firm will accept it if the amount is larger than the value of its marginal product. If this transaction doesn’t happen, the victim will move out and no negative externalities would happen. As it is the case in III, the outcome depends on the value of firm’s marginal production and its cost on the victim.

It is necessary to know if the damaging business is liable for the damage since the establishment of the delimitation of right facilitates market transaction, but as long as the transaction cost is zero, people would bargain with one another to produce the most efficient distribution of resources, regardless of the initial legal position.

V.                 The problem illustrated anew

Problems of negative externalities can assume various forms in life. But the bottom line is that the problem is caused by both pollutant and the victim. The economic problem in all cases of harmful effects is how to maximize the value of production. The immediate question courts have to cope with is who has the legal rights to do what, but as long as the transaction cost is zero, the decisions of the courts concerning liability for the damage have no effect on the final allocation of resources. A legal rule that arbitrarily assigns blame to one of the parties gives the right result when that party happens to be the one that can avoid the problem at the lower cost.

VI.              The cost of market transaction taken into account

In real life, many welfare-maximizing reallocations are forsaken because of high transaction costs in the process of bargaining. In this situation, the initial delimitation of property rights will affect the efficiency with which the economic system functions.

A firm could reach the efficient outcome, but the administrative cost for firm to organize a transaction isn’t strictly less than that from the market. People will use firm to organize a transaction when its costs are less than the cost incurred through market.

When the transaction cost of the firm is very high, an alternative option is direct government regulation. The government, to some extent, is a super-firm because it can influence the use of factors of production by administrative decision and it can avoid the market competition. The government can use its power to get things done at a lower cost, but the administrative machine itself isn’t costless, and the regulation may not be efficient. All solutions have costs and there is no reason to suppose that government regulation is called for simply because the problem is not well handled by the market or the firm. The law should produce an outcome similar to what would result if the transaction costs were eliminated. Hence courts should be guided by the most efficient solution.

VII.            The legal delimitation of rights and the economic problem

The courts should take into consideration the economic consequence of their decision. A comparison between the utility and harm produced is an element in deciding whether a harmful effect should be considered a nuisance.

The problem of negative externalities isn’t about restraining those who are responsible for them; instead, the problem is to decide that, given the negative externalities, whether the gain from preventing the harm is greater than the loss resulted from stopping the action that produces the harm. In a world with transaction costs, courts make decisions on economic problem and determine how resources are to be allocated. The courts are conscious of this and they make comparisons between what could be gained and what would be loss by preventing the actions. The delimitation is also the result of statutory enactment. Sometimes courts may protect the firm too far.

VIII.         Pigou’s treatment in “economics of welfare”

The existence of externalities does not necessarily lead to an inefficient result. Pigouvian taxes, even if they can be correctly calculated, do not in general lead to the efficient result.

IX.              The Pigovian tradition

For Coase, the idea that firm should be forced to compensate those suffer from negative externalities is the result of not comparing the total product attainable within various social arrangements. A tax system which is confined to a tax on the producer of the damage caused will lead to higher cost of solving the problem if the alternative solutions incur fewer costs. In addition, Pigouvan taxation begs the question of detailed information of personal preferences, which is hard to achieve in real market. What’s more, even if the problem of information is solved, tax will increase because more people will live in the vicinity, incurring reciprocal negative externalities on firms. If regulation is truly inevitable, the goal is to approach the optimum amount of negative externalities rather than just eliminate harm regardless of the cost.

X.                 A change of approach

Coase believes that analysis in terms of divergence between social and private cost of products pays close attention to particular deficiencies in market and tends to nourish the belief that any mechanism eliminating the deficiencies would be desirable, but such mechanism may induce unintended consequences.

Pigouvan analysis proceeds in terms of a comparison between a state of laissez-faire market and an ideal world. Coase suggests that a better approach should examine the transaction costs and delimitation of property rights, conduct cost-benefit analysis on various proposals and decide which institution to set up.

Coase thought that failure to cope with externalities correctly results from a wrong concept of a factor of production. Factors of productions are a right for a person to perform certain actions on his property.  The cost of exercising a right is the loss born somewhere else in consequence of exercising the right. In deciding social arrangements in which individual decisions are made, Coase believe that all solutions have costs and there is no reason to suppose that government regulation is called for simply because the problem is not well handled by the market or the firm. Economists should account for total effect of each proposed arrangement to make the best decision.

The ultimate thesis is that law and regulation are not as important or effective at helping people as lawyers and government planners believe. Coase and others like him wanted a change of approach, to put the burden of proof for positive effects on a government that was intervening in the market, by analyzing the costs of action.

Book review of Crisis Economics

Since the 2008 financial meltdown, there have been a lot of debates and discussions on what happened and what should be done to check the next financial crisis. The book Crisis Economics by professor Nouriel Roubini, nicknamed Dr. Doom due to his bearish economic view, and journalist Stephen Mihm, contains review of the 2008 crisis and pro-regulation suggestions to fix the market.

The central thesis of Crisis Economics is that financial crises are inherent in capitalism and predictable¹. After a recap of significant financial crises in history, they claimed that they found patterns of a typical financial crisis. In their model, a financial crisis starts with an asset bubble, which results from excessive credit supply or optimism about one technological innovation. Believing that asset price will never go down, investors borrow more and buy more. At some point, the bubble implodes, sending some highly leveraged investors to bankruptcy. Creditors realize the problem of bad loans and demand investors to put up more funds and collateral to compensate for falling price, which incentivizes them to fire sell the asset. A sudden increase in asset supply drives down price further and stirs panics in the market. More and more investors default, and banks are unwilling to loan out. As a result, liquidity crunches and crisis occurs.

This model seems compelling, but it doesn’t elaborate a couple of important aspects. First, where does excessive credit supply come from? A lax regulation of government or a loose monetary policy by Fed? If this is the case, can we blame market for being greedy? Besides, just because it is cheaper for investors to get credits doesn’t necessarily mean that people will demand a whole lot of them. In other words, what the authors missed in their model is a discussion of elasticity of credit demand curve. In addition, what is the crucial turning point? The authors just said that we could use various economic indicators to discern the turning point, but they didn’t articulate how to do the prediction. It is easy to deduce what would happen after bubble implosion, but predicting the timing of bust is a totally different issue. In my opinion, this lack of discussion attenuates their argument that financial crises are predictable.

In the next couple of chapters, the authors turned to analyze the financial meltdown in 2008. They claimed that lots of parties were culpable for the crisis. Considering that the reasons are manifold, I will first lay out their arguments, and then present what other economists think and my thoughts.

Alan Greenspan’s monetary policies

In the book, Alan Greenspan was blamed for adopting an easy-money policy by keeping interest rate too low for too long, which help expand the credit, incentivize irresponsible investment and foster the housing bubble.²  But some economists argue that Greenspan’s policy was actually tight and that critics made a classic mistake for using interest rates to evaluate monetary policy. ³ After a check of monetary base during Greenpan’s period, economist David Henderson found out that the inflation rate was stable and the change between the amount and velocity of M2 coincided with scenarios within a free banking system.⁴ In other words, though the interest rate during Greenspan’s era was low, it didn’t necessarily inject a huge amount of money in the housing market and start the bubble. In defend of his actions, Greenspan was actually right in attributing the low interest rate to a massive flow of savings from Asian economies and Latin America⁵. One problem of Crisis Economics is that the authors didn’t mention much statistical measure of monetary bases. Layman readers thus are very easy to be frightened by the unusually low interest rate and guided to believe that money and credit exploded during Greenspan’s period.

Payment mechanism in Wall Street

Roubini and Mihm criticized that big bonuses in Wall Street incentivize bankers to take more risks and higher leverage on a massive scale⁶. Similarly, celebrities like President Obama and vice president Biden considered big bonuses as “shameful irresponsibility”. However, such fury might have missed the target. Economist Alan Reynold explained that those big figure bonuses were actually paid to a large number of employees within the Commerce Department’s North American Industry Classification System (NAICS) rather than merely high-profile investment bankers⁷.

In addition, a second thought may justify such compensation mechanism. Bonuses, different from fixed salaries, are variable costs for banks doing business in financial industry known for its high volatility. Paying big bonuses and not-that-big salaries does two good things for banks. First, it keeps them from having to predict the future. Instead of having to budget money for all employee pay in at the start of the year, managers can look back at the end of year, figure out what final revenues are, and set pay levels accordingly. Such payment strategy limits the risk of over or underpaying to employees.  A widely ignored fact was that after the financial crisis, many Wall Street firms didn’t cut employees’ overall pay by much; instead, they shrank the cash portion of bonuses and paid more in salaries to compensate for the missing bonuses.⁸

Another advantage of this payment system is that it makes banks easier to cut variable costs very quickly when necessary. When the chips are down, cutting bonuses instead of salaries means that the firms don’t have to lay off too many employees. Recently, increased regulation of employee bonuses compensation has triggered increasing salaries and led to a higher proportion of deferred compensation levels, leading to a concerning highly fixed cost base for a volatile revenue business. 

As for the argument that big bonuses encourage reckless behavior by incentivizing traders to swing for the fences in an effort to juice their own pay, theoretically a bonus-based compensation system should actually reduce the risk of bad behavior, as bonuses can claw back when something goes horribly wrong. What’s more, a recent research conducted by Cheng, Raina and Xiong showed out that mid-level securitization agents were unaware of the danger of housing sectors since they also bought a lot in housing market.⁹ In other words, the reasoning presented by Roubini and Mihm can at most partially explain the over-issuance of toxic securities. In this case, changing the payment system might not check the occurrence of the next financial crisis.

Ownerships and sizes of investment banks

Roubini and Mihm believed that huge principle-agent problems within the investment banks partly led to over-issuance of securities of bad quality. Shareholders didn’t have much incentive to monitor the banking business because firms relied on borrowed money for operations so heavily that shareholders didn’t have much skin in the game.¹⁰ They doubted that managers could manage big and complicated investment banks and suggested that it was a disaster to allow investment banks to go public in 1970s. As a remedy, they called for a more responsible mechanism, namely partnership, to incentivize shareholders to monitor their firms’ business.¹¹

Roubini and Mihm were right that investment banks should have more capital for cushioning the possible liquidity shock, but turning investment banks back to partnership might not be the best way. Back in 1998 when Goldman Sachs decided to go public, some economists had guessed that the decision was a response to technological change and competitors’ expansions.¹² Research later conducted by Morrison and Wilhelm Jr. confirmed the previous conjecture. They discovered that that advances in information technology (especially the fast development of computer technology since the late 1960s) and codification of tacit human capital in financial services increased the cost for investment banks to maintain partnerships and incentivized them to go public to expand and enjoy benefit of economies of scales.¹³ From this perspective, forcing investment banks back to partnership may result in unintended consequences like diseconomies of scales.

One suggestion Roubini and Mihm gave was to break up banks that are “too big to fail”.¹⁴ They reasoned that the collapse of Lehman Brothers and the resulting panic of financial market showed that some financial institutions had become so big and interconnected that their collapse would cause systemic effects. ¹⁵ But some economists present their worry and doubt about such radical move. Peter J. Wallison thought that the idea of too big to fail is at best a plausible theory. ¹⁶ The collapse of Lehman Brothers didn’t drag down any other financial firms. None of the institutions rescued after Lehman—Wachovia, WaMu, and AIG—were made insolvent or unstable or had to be rescued because of exposure to Lehman.¹⁷ Historical evidence revealed that unless the market is already in a panic, with many firms insolvent, the notion of too big to fail lead regulators to overreact. Besides, breaking up big banks may lead to big consequences like lack of diversification of risks and renegotiations of financial contracts. Breaking up big banks may not necessarily be a bad idea, but without a complete cost-benefit analysis the unintended costs may jeopardize the whole financial market.

Problems of credit rating agencies (CRAs)

Roubini and Mihm were critical of the role CRAs played in the financial crisis. They criticized CRAs for taking hefty fees from issuers of securities and letting toxic derivatives flow to the market. They called for a complete reform in rating system, namely that CRAs should be forbidden to offer any consulting or modeling services, more agencies should be allowed to evaluate the derivatives, and change in payment systems.¹⁸

I agree with the authors that more competition should be introduced in credit evaluation business. Historically, regulators have been using credit evaluation to oversee the financial market. During Great Depression, the Office of the Comptroller of the Currency (OCC) stipulated that banks not obtaining credit evaluation would be panelized, which introduced CRAs into financial regulation framework. In 1970s, regulators set up Nationally Recognized Statistical Rating Organization (NRSRO) to oversee the ever-increasing volume of securitization. Issuers of securities have to obtain rating from NRSRO in order to maintain the operation. This legislation was intended to help investors understanding the underlying risks of various derivatives, but for NRSRO members (S&P, Moody’s and Fitch), lack of competition led to oligarchic profits, which incentivized them to produce worse services. Credit ratings were severely inaccurate in the incidences of WorldCom, Enron, Parmalat and 2008 financial crisis, and it is hard to believe these are just random errors of CRAs. ¹⁹ However, NRSRO CRAs’ fees and profitability increased during 2002 and 2008. ²⁰ This implies that government-granted oligarchy in credit rating business has skewed initial objective as to provide accurate information; instead, issuers pay CRAs in order to issue the derivatives. In my opinion, introducing more competition can incentivize CRAs to develop better models to evaluate the bonds and stocks, and issuers can have more freedom choosing CRAs that provide better services.

“Deregulation” of financial sector

The authors’ argument on deregulation is in fact a widely accepted narrative why 2008 financial crisis. They attributed the cause to the repeal of Glass-Steagall Act and the failure to regulate the shadow banking systems, which incentivized excessive financial innovations like credit default swaps. (CDSs) I think it hilarious that authors argue that regulation was weak. Financial sector is the most regulated sector in America. Any responsible banking textbook would list page-long regulation implemented. During the so-called “free banking” era banks had to observe strict rules. Even the Glass-Steagall Act is only partially repealed: banks are still prohibited from underwriting or dealing with securities (Section 16) and securities firms cannot take deposits (Section 21). ²¹ Roubini and Mihm proposed that investment banks should be regulated like commercial banks and have access to deposit insurance, but I strongly oppose to this idea. Regulation is supposed to protect depositors from bad loans, but it is meant to protect commercial bank investors. Investors of securities should bear cost by themselves rather than rely on the lender of last resort. What’s worse, the new legislations are often superimposed on the current regulation mechanism, leading to massive overlapping and waste of resources.

As for the argument that fancy derivatives sprouted in lieu of loose regulation, I would say the opposite. The regulation has been strong over time, and to gain profit, firms have to figure out other ways to gain profits. Offshore banking emerges for regulatory arbitrage and rent seeking abounds because of tight regulation on branching and banking business. The regulation record is disastrous, but it seems that every time a crisis occurs, people long for another piece of law with no scrutiny of what the real cause is in the first place.

Roubini and Mihm criticized that collapse of CDSs led to market crisis, but such claim is questionable. Lehman Brothers was the biggest CDS player, but its bankruptcy didn’t drag down many of its counterparties. Nor did many firms it guaranteed CDSs for defaulted during the crisis. As for AIG, although most of its CDSs were written to guarantee the CDOs backed by MBS that were backed by toxic assets, it screwed up mainly because it didn’t hedge risk when writing swaps, which was a rather unusual case. Since most of the CDOs AIG was covering had lost value during the crisis and it didn’t sufficient collaterals to pay the counterparties, its bankruptcy would jeopardize market. However, considering that the obligation of the CDSs was between 25 and 41 billion, it might not cause systemic risk, which was the reason why the Fed bailed out AIG. ²² The two incidents might imply that CDSs are not as dangerous as many people assumed, but can we actually find out a way to make them safer? The authors discussed about the idea of having these fancy derivatives traded in a central clearinghouses.²³ Clearinghouses can mandate member banks to put in collaterals, assume the burden of the contracts if counterparty failed. But the authors’ worries were that clearinghouses might fail and investment banks would come up with other ways to avoid clearinghouses’ requirement. Some other economists have proposed some supplement strategies. Jeremy Kress argued that central clearinghouses should have access to emergency credit from central bank. ²⁴ (My worry about this proposal is moral hazard.) Professor Rizzo thinks that bailing out central clearinghouse would be easier than bailing out multiple individual banks. Peter J. Wallison worries about the potential cost for clearinghouse to oversee the CDS trading. ²⁵

Conclusion

One big impression I feel about Crisis Economics is that it is a book from the perspective of legislators. Roubini and Mihm seem to have a craving for legislation and additional regulation. Though they endorse the thinking by acknowledging that a necessary reckoning must take place over the longer term in order to achieve a return to prosperity²⁶, throughout the book I could only read recommendations for more government intervention and the notion that financial sector cannot correct itself, and it seems their mention of Austrian School thoughts was just a superficial courtesy to historical figures.

One problem I find in this book is the shortage of footnotes, making it hard to trace his sources and cross-match them with their arguments. What’s worse, the book is filled with non-innovative and costly solutions to fixing the financial system. I’m not saying that financial market shouldn’t be regulated. My point is that, given that there are already a lot of regulations overlapping one with another, superimposition of another piece of legislation might not be valuable. The causes of the 2008 financial crisis remains a puzzle for me, but some ideas that the authors presented can be excluded after a cross-matching of historical data and researches.

Overall, Crisis Economics is an easy-reading introductory book about what happened in 2008 financial market. However, I’m disappointed about this book because it doesn’t provide many refreshing thoughts and convincing evidence.

References and citations

1.  Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp19

2.  Ibid, pp33

3.  David R. Henderson and Jeffery Rogers Hummel, “Greenspan’s Monetary Policy in Retrospect”, Cato Institute, November 3, 2008

4.  Ibid

5.  Diego Valderrama, “Are Global Imbalances Due to Financial Under development of Emerging Economies?” Federal Reserve Bank of San Francisco Economic Letter no. 2008-12, April 12, 2008, Alan Greenspan, The Age of Turbulence: Adventures in a new world,(New York, Penguin Press, 2007), pp385-388

6.  Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp69

7.  Alan Reynolds, “The Truth About Those Billion Bonus”, Forbes, February 10, 2009

8.  Kevin Roose, “In Defense of Wall Street Bonuses”, NY Times, December 12, 2012

9.  Ing-Haw Cheng, Sahil Raina, and Wei Xiong, “Wall Street and the Housing Bubble”, National Bureau of Economic Research, March 2013

10. Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp70

11. Ibid, pp197

12. James Suroweicki, “Why Do Investment Banks Go Public”, Slate website, June 19, 1998

13. Alan D. Morrison and William J. Wilhelm, Jr., “The Demise of Investment-Banking Partnerships: Theory and Evidence”, Oxford Financial Research Centre Working Paper, July 2004

14. Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp223

15. Ibid

16. Peter J. Wallison, “Breaking Up the Big Banks: Is Anybody Thinking?”, American Enterprise Institute, September 18, 2012 

17. Ibid

18. Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp195-19   

19.  Claire A. Hill, “Why Did Anyone Listen to the Rating Agencies after Enron?”, Journal of Business and Technology Law, Vol. 4, pp283, 2009

20.  P. Jenkins, “DBRS to Challenge Big Agencies,” Financial Times (London), January 10, 2006

21.  Gramm-Leach-Bliley Act, Public Law 106-102, U.S. Statutes at Large 113 (1999): 1338.

22.  Peter J. Wallison, “Deregulation and Financial Crisis: An Urban Myth”, American Enterprise Institute, October, 2009

23.  Nouriel Roubini and Stephen Mihm, Crisis Economics, (Penguin Books Ltd, 2010) pp201

24.  Jeremy C. Kress, “Credit Default Swap, Clearinghouse, and Systemic Risk: Why Centralized Counterparties Must Have Access To Central Bank Liquidity”, Harvard Journal of Legislation, Vol. 48

25.  Peter J. Wallison, “Unnecessary Intervention: The Administration’s Effort to Regulate Credit Default Swap”, American Enterprise Institute, August, 2009

26.  Peter J. Wallison, “Does Shadow Banks Need Regulation?”, American Enterprise Institute, May-June 2012