The Difficulty of Measuring Bank Capital
By Arnold Kling
he capital positions reported by “large complex financial institutions” are so difficult to compute that the confidence interval surrounding those estimates is greater than 100% even for a bank “conservatively” levered at 11× tier one capital.
Recall that the regulator for Fannie Mae and Freddie Mac reported that they were “adequately capitalized,” and not long afterward they had to be taken into conservatorship.
Thanks to Tyler Cowen for the pointer.
[UPDATE: British Tory supports breaking up big banks there.]