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Not simply issue unfunded indemnity obligations like Credit Default Swaps.
"Unified capital requirements for banks and insurers would be wrong." Nikolaus von Bomhard, Chief Executive Officer of Munich Re, quoted by Oliver Suess, "Insurers do Need 'Suitable' Supervision, Munich Re Chief Says" (Bloomberg.com, Wednesday, March 3, 2010).
There are those in the Banking sector who argue forcefully against Regulation including requiring Reserves for Credit Insurance known as Credit Default Swaps. They may point to comments like those in the above quotation from the CEO of Munich Re to bolster their case that Banks and Insurance Companies are different and should be treated differently. They miss the mark.
What the man was saying is that Insurance Companies are better capitalized than Banks. Id. A major reason that Insurance Companies are better capitalized than Banks is that Insurance Companies must post Reserves to handle Claims against the Policies they issue. Whenever Banks act like Insurance Companies, they should be regulated like Insurance Companies. That includes the requirement that they post Reserves -- or set aside Capital -- to pay their liabilities, such as the otherwise unfunded liabilities of Credit Default Swap obligations.
The animal may have four legs and a tail, and a sign around its neck that proclaims it to be a "Horse," but if it has an udder it is still a cow.
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