Banks have massive positive externalities on the whole. As usual, the braintrust of finance haters wants to force them to pay for any negative one, even when heavily caused by other actors as well, while treating the capture of all of their positive externalities as the rest of the world's birthright. The US finance sector pays the government $400 billion a year in taxes, but if it every needs any help or services in return, this is presented as horrible and unjust.
Why? Envy, resentment, populist blame games, pretty much.
You want banks to be more adequately capitalized. Great. Now, ask what attracts capital to banking. Lower risk might, but higher costs and lower returns do not. It is not like the returns to banks are so awesome that you can require double the capital with lower gross returns spread over it. If you do, guess what? Capital will flee the banking sector, no one will lend to them at reasonable terms, above all no one will be willing to provide them their equity risk capital. So, guess what? You get to. The authorities, the taxpayers.
If the whole point of the exercise is that you want a functioning banking system *without* massive government capital being required to let it function, then the only way to get it, is to make the terms of return and risk for capital employed in finance *more* attractive, not less. You cannot fix a problem of no one wanting to risk a dime as a banker, by loading down bankers with brickbats and scorn and the heaviest requirements you can dream up.
This isn't hard to figure out, people. If a society *consumes* its banking capital in an orgy of deadbeat behavior, whether due to stupid risks run or any other way, then it either replaces that capital and restores all the losses it inflicted, or it goes straight to hell.
Worrying about incentives to behave more cautiously when the whole problem is that men are so shellshocked at 13 figure losses they won't take the slightest risk, is missing the point hopelessly. Don't worry. Epic losses have already provided all the incentive to scale back risk taking the market could possibly require. So much so, that the world economy is in reverse and final demand is in the toilet.
The only way to *economically* justify double the capital at major banks is to double the profits of major banks. Capital *is* the projection of future profits, discounted to the present. Anyone see the pols bending over backwards trying to accomplish that? The only other way is to reduce the rate of discount, but capital flows competitively to higher returns. If you try to deliberately peg the rate of return on banking capital well below what the market bears elsewhere, again, the capital allocated to banking will shrink, not grow.
The crisis doesn't end until bank stock goes *up*. Not to zero. Not, lower future profits divided over twice the invested capital. Nobody will invest that capital but you.
If you can also reduce the objective risk to banking business, then that can help attract capital to the business. Guess what that means about loan behavior or monetary regulation? It means it has to be rigorously *less* populist and tilted to favor lenders over borrowers. Anyone see *that* as the emphasis in e.g. loan work out programs and the like?
Socialists tried to solve famines by attacking the farmers as class enemies. It always fails and it destroys the service that is assaulted. Attacking bankers are class enemies because of a banking crisis is exactly the same mistake. In a famine, the rest of the society needs to support farmers, not blame them and attack them. In a financial crisis, the rest of the society needs to support financiers, not blame them and attack them.
If you don't, you go to hell.
Law of nature, people.
In the world of economics, risk and return are diametrically opposed. Usually, lowering risk results in a lower return. And vice versa. Increased returns usually requires increased risk. Yet you seem to want to somehow rewrite the laws of economics by simultaneously decreasing risk and increasing returns for the banks.
Expand on this a little.
Tell us how that works, exactly?
Risk is real and it exists. Someone must assume it. If not the banks, then whom? You can't just wave it away.
One of the main reason for this crisis was that those who originated the risks (read "mortgages") became separated from it. The risk became someone else's problem.