Interesting economic times that hold a plethora of possibilities…

Interesting economic times that hold a plethora of possibilities…or how quickly does economic history repeat itself?
As we work our way through the struggle between highly leveraged monetary policy and uncontrolled fiscal policy, what shall the results (or lack thereof) of all of these initiatives (over the last several years) yield? Higher interest rates or lower interest rates? Improved economic growth or slower economic growth? Inflation or stagflation? Increasing levels of governmental intrusion or reduced levels of economic interference?
And as we experience ever increasing levels of leverage (national, state, local), the Fed taking on the role of sovereign asset ‘disintermediator’ on a global level, the continuing concentration of financial and economic power in fewer hands, commodity bubbling, and overall economic malaise what should we be doing?
Considering all of the unanswered questions about where we are headed economically community financial institutions are still foundational to their community’s economic well being. And in that light we must continue to focus on our strengths in helping to build stronger communities. Meeting credit and liquidity needs, helping our communities understand financial and economic risk (current and potential), being proactive instead of reactive, providing service levels that exceed customer expectations, dealing with the ever-present ‘tyranny of the urgent’ yet not forgetting about the ‘opportunities of the present’ with hope for the future. In spite of the hindrances and obstacles that have been placed before us let us take a fresh view of how we, as community financial institutions, can positively impact our communities in this time of economic uncertainty.
prb

In the News:
Bloomberg is running an article this morning saying that the Basel requirements for higher capital at SIFIs would give the largest banks a funding advantage because they would be seen as "too big to fail." This is an interesting take on the higher capital requirements that has some merit it would seem. If the regulators view the institutions as so critical that they need to retain more capital to ensure the safety of the financial system, does this also mean that governments would bail them out in the case of an emergency?
Nobel Economist Myron Scholes sounded a warning in the press that higher capital requirements may create more volatility in the financial system.
Separately, a Politico release quotes a senior Fed official as saying that "pushing capital requirements on banks could be very dangerous." According to the official, "The 1929 stock market crash is often regarded as the beginning of the Great Depression. In fact, the economy managed a weak recovery following the Crash, not unlike the one we`ve experienced since the financial crisis. But in September 1931, the [Fed] raised the discount rate sharply in an attempt to stem an outflow of gold reserves ... Within a year, the economy had relapsed dramatically, taking its deepest plunge between November 1932 and March 1933, ushering in the Great Depression and more than a decade of misery ... Capital requirements are an instrument of financial supervision, but also an instrument of monetary policy. Like the discount rate and reserve requirements, they determine the extent to which banks can lend and, therefore, the rate of growth in the money supply and the pace of economic activity. By insisting on higher and higher levels of required capital, regulators risk making precisely the same mistake as their predecessors at a very similar juncture in the current economic recovery -- with potentially disastrous consequences for the nation."
Craig Dismuke, The Market Today ONLINE, June 23, 2011