Salient to Investors:

Policy makers and some Wall Street veterans see a banking system still too leveraged, complicated and interconnected to withstand a panic, and regulators ill-equipped to head one off — the same conditions that led to the last crisis.

Stefan Walter said we are safer, but not safe enough.

More than 50 bankers, regulators, economists and lawmakers disagree about what needs to be done. Some said the 6 biggest U.S. banks have only gotten bigger since 2007 making it harder to let them fail. Others are not troubled by bigness or a system that requires government intervention every now and then and say it an inevitable cost of financing global business. Some say leverage is still too high.

David Komansky at BlackRock said banks are too big, and are going to have to be too big and he doesn’t mind government intervention.

The largest banks remain Byzantine, with hundreds of subsidiaries around the world. JPMorgan has 3,391 legal entities in more than 100 countries. Six US regulators with overlapping authority often clash and are besieged by an army of highly paid lobbyists.

There is little transparency about banks’ trading and derivatives businesses or their counterparties.

Anil Kashyap at the University of Chicago said the basic model has not changed much, and remains fragile, and banks need much more capital and liquidity.

Kimberly Krawiec at Duke University said bank executives, lobbyists and lawyers logged more than 700 meetings with regulators on a section of Dodd-Frank that seeks to curb banks’ trading for their own account. Regulators still have not finished the Volcker rule.

Davis Polk & Wardwell said that more than 3 years after Dodd-Frank was enacted, only 40 percent of 398 rulemaking requirements were completed.

David Skeel at University of Pennsylvania said the big banks still have had an enormous amount of influence, and there was no serious effort to neutralize them as they were seen much more as partners than as problems.

Anat Admati at Stanford University said the fact that banks find counterparty exposure limits so onerous shows you how interconnected they are.

Gary Gorton at Yale said while notional values exaggerate the extent of the risk, netting underestimates it and provides hidden leverage to banks, so you cannot really see how big the banks are or what risks they’re taking by looking at their balance sheets – we don’t really know where the risk is.

Daniel Neidich at Dune Real Estate Partners said big banks are a condition of modern life and how global and interrelated it is, and the benefits of that interconnectedness are tremendous.

Hank Paulson said more needs to be done to fix the repo markets, and some of the most serious problems in the US financial markets lie in the so-called shadow-banking market.

John Reed said Wall Street has not changed as dramatically as it should have and worries that a recovering economy, record stock prices, and hefty bank profits might lull people into complacency. Reed said the world looks pretty benign right now, but it always does until it is not.

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