ABSTRACT
This part introduction presents an overview of the key concepts discussed in the subsequent chapters. The part argues that the risk weights for differing types of capital are arbitrary and may be incorrect for any one bank. It shows that the requirements of increased capital holding and risk-based capital standards for banks have caused the existing "credit crunch" and have had a disproportionally detrimental effect on small business. The part shows that the goal of Americans to own their own businesses is culturally determined. Existing equity is subsidized because banks can make excess loans and the deposit insurance system bears the risk. The requirements may induce some banks to cancel or refuse desirable loans; a regulatory system will not respond optimally. Nonetheless, some regulation may be a second-best response to the problems created by the deposit insurance system.
