Alan Greenspan Quotes

Loss-absorbing capacity among banks is substantially higher as a result of both regulatory requirements and stress testing exercises.

Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.

Compelling large banks to hold more capital reduces their risk of failure, but as the last financial crisis [the Meltdown of 2008] demonstrated, during a wide-spread panic, investors and lenders lose all faith in the values banks have assigned to their assets, and many mistrust the banks that claim to have enough capital.

Complexity and interconnectedness matter as much as size in assessing risk in banking.

It's extremely important for our banks to have more capital, higher quality capital.

A bank needs models to measure risk. The problem, however, is that any one bank can measure its risk, but it also has to know what the risk taken by other banks in the system happens to be at any particular moment.

The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.

The fundamental problem with banks is what it's always been: they're in the business of banking, and banking, whether plain vanilla or incredibly sophisticated, is inherently risky.

Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement.

It is no wonder that bank capital is regulated. When borrowing and lending is profitable, it is tempting for banks to scale up their operations and to borrow and lend too much in relation to their capital, in effect reducing the effectiveness of the potential capital cushion.

Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.

I've been telling anyone willing to listen that banks have a tendency to sit on time bombs while convincing themselves that they are conservative and nonvolatile.

At the heart of banking is a suicidal strategy. Banks take money from the public or each other on call, skim it for their own reward and then lock the rest up in volatile, insecure and illiquid loans that at times they cannot redeem without public aid.

If nobody can sell mortgage-backed securities based on trillions of dollars of unpayable instruments, there's a lot less risk in the overall system.

Banks always want their capital requirements to be as low as possible, so they can take more risks, which can enable them to make more money – and reap bigger bonuses for executives.

Banks are employing risky derivatives strategies to goose up returns….the interbank market could freeze up, and one could well have a full blown financial crisis.

The failure of one regional bank, assuming it is following a traditional model, will not threaten the entire system.

The financial crisis revealed important weaknesses in many areas of our financial system.

The financial crisis was linked to the fact that banks had excessive leverage and too many risky assets. The solution is not to try to dictate to banks what they can do or not do, but to require them to strengthen their capital to absorb potential losses and hold less risky assets.

I haven't studied it deeply, but the American banks started the crisis with far more capital and what I would call "good liquidity." The riskiest funding is unsecured wholesale funding. It's the most fickle. Not repo, which the government focused on, too. Unsecured. JPMorgan Chase had almost none of that - virtually zero.

Risk managers and investment bankers and actually, all kinds of investors took on more risk than they expected. So there was a failure of risk management. There was a failure to recognize how much risk there was in some of these securities that people bought.

Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs.

Among other objectives, liquidity guidelines must take into account the risks that inadequate liquidity planning by major financial firms pose for the broader financial system, and they must ensure that these firms do not become excessively reliant on liquidity support from the central bank.

The real danger with debt is what happens if lots of people decide, or are forced, to pay it off at the same time.

If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that.