Banks often oppose higher equity asset ratios, because equity capital is more expensive than debt capital.

First, capital requirements should be set as a straightforward ratio of common equity to total assets, thereby abandoning all reference to banks own risk management models.

But the Fed cannot endow the banks with new equity capital and prevent a credit crunch.

And trades do go wrong remember the collapse of Long Term Capital Management.

We need new capital, and new approaches to management, in the banking system.

Rather, the banking system is at the brink of insolvency, with a permanent loss in equity capital.

The only effective response is counter cyclical capital account management discouraging foreign borrowing during economic upswings and preventing capital flight during downswings.

Under Chapter 11, companies with a solid underlying business generally swap debt for equity. Old equity holders are wiped out and old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure.

Lack of equity capital, in turn, made risk averse shareholders hire gamblers to manage their limited liability investment companies.

Another hoped for benefit was that capital gains could be converted into home equity loans, boosting homeowners living standards.

The owner of Prestige Cruises, private equity firm Apollo Global Management LLC (APO.N), also owns a 20 percent stake in Norwegian Cruise.

This is why equity capital held by financial institutions typically is more than twice as expensive as debt capital and why these institutions try to minimize its use.

Banks have begun to de centralize essential functions, re locating market and treasury operations, liquidity and capital management, and risk management, for example, in different countries.

Diversified management means better management.

Instead, they should become partners of private shareholders, endowing the banks temporarily with new equity capital until the crisis is over.

Hedge funds can also destabilize the system, as the collapse of Long Term Capital Management in 1998 demonstrated.

Given that the combined equity capital stock of all US financial institutions is roughly 1.2 trillion dollars, this is a breathtaking sum.

Investment banks like Bear Stearns and Lehman Brothers got into trouble because they had too little equity capital far less than 10 .

He also has invested in non traditional asset classes, including real estate, oil, timber, private equity, and venture capital and buyout firms.

Taming the Private Equity Locusts

The typical bank is capitalized with equity, long term debt, short term debt, and deposits. Investment banks like Bear Stearns and Lehman Brothers got into trouble because they had too little equity capital far less than 10 .

They will continue to deprive the banking system of its equity capital, with little chance of it being recouped in the near future.

These risks are already exacerbating the economic slowdown equity markets are falling everywhere, leading to negative wealth effects on consumption and capital spending.

According to the European Commission, creating a single European capital market would reduce the cost of equity capital for EU businesses by 0.5 and lower the cost of corporate debt financing by 0.4 .

Procurement management

Project Management

Disk Management

Micro Management

The failure of Long Term Capital Management a few years ago provided a lesson about risk management and the need to not be dreamy eyed about a string of huge returns.

We need to ensure transparency and adequate risk management, measures on which are part of my proposal on capital requirements.

Beyond capital rules, however, monetary policy and financial supervision must cooperate very closely on liquidity management, particularly through credit mechanisms.

Rather, bonds should be at least partly converted into equity capital, and any infusion of new capital by the government should be in exchange for securities that are senior to those of existing bondholders.

Moreover, you should care about equity.

But in bad times, when it is important to keep banks lending, bank capital would automatically be increased by the debt to equity conversion.

In particular, if the firm s equity capital erodes, the government should not provide funds (directly or indirectly) to increase the cushion available to bondholders.

Foreign participation in the financial sector brings expertise needed to provide more efficient savings instruments, risk management, and allocation of capital.

The mutual interaction between the incentive to minimize equity capital and the incentive to gamble in order to exploit the upside risks caused America s crisis.

Equity based awards, coupled with the highly leveraged capital structure of banks, tie executives compensation to a leveraged bet on the value of banks assets.

Risky Risk Management

Management is great.

Management and oversight

(f) Disaster management

Staff management consultations

(a) Management services

Human resources management