Bove Says Increased Bank Assets Requirement Increases Risk

US Federal Reserve proposals to increase bank assets to potentially stave off the next financial crisis are taking the wrong approach, argues Dick Bove, Rafferty Capital Markets bank analyst.

Increased bank assets will prevent financial crises and bank failures

“The United States banking system is being made to adhere to an unproven theory that is totally incorrect,” Bove wrote in a research note yesterday.  “This theory argues that if banks have more capital it will prevent financial crises and bank failures.”

Bove points to bank panics and failures in 1819, 1837, 1857, 1873, 1893, 1907, and 1933 – in each of which, he notes, capital was not the issue. It was the quality of assets and the lack of liquidity that...