Equity Is the Problem! A Proposal for Bank Capitalization by Eliminating Equity Capital Requirements and Replacing Them with Positive Book Equity Recourse Notes

38 Pages Posted: 7 Aug 2018

Date Written: June 8, 2018

Abstract

This paper presents a system for bank capitalization and regulation which reduces procyclicality from money and finance, and thus should reduce the probability and severity of future recessions caused by banking crises. The core innovation is to replace the equity requirements of the current system with new requirements demanding substantial issuance of a new security, Positive Book Equity Recourse Notes (PBERN), that is related to Equity Recourse Notes (ERN) devised by Jeremey Bulow and Paul Klemperer in 2013. This system is designed to stabilize credit availability in the economy during periods of shock and support a higher output economy while minimizing moral hazard issues, costs to the government and bank cost of capital.

Suggested Citation

Blaustein, Peter and Sosin, Clifford, Equity Is the Problem! A Proposal for Bank Capitalization by Eliminating Equity Capital Requirements and Replacing Them with Positive Book Equity Recourse Notes (June 8, 2018). Available at SSRN: https://ssrn.com/abstract=3216230 or http://dx.doi.org/10.2139/ssrn.3216230

Peter Blaustein (Contact Author)

Blueport Capital ( email )

Suite 220
Menlo Park, CA 94025
6502340565 (Phone)

Clifford Sosin

CAS Investment Partners ( email )

8 Wright Street fl 1
Westport, CT 06880
United States
2128047660 (Phone)

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