In a scathing editorial published in the Wall Street Journal today, the president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, blasted US banks, saying that they still lacked sufficient capital to withstand a major crisis.
Kashkari makes a great analogy.
When you’re applying for a mortgage or business loan, sensible banks are supposed to demand a 20% down payment from their borrowers.
If you want to buy a $500,000 home, a conservative bank will loan creditworthy borrowers $400,000. The borrower must be able to scratch together a $100,000 down payment.
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