“Not only are capital regulations, written as parts of Basel II and Basel III, driving banks to hold government instruments such as US Treasury securities, but it is also driving banks to buy junk municipal debt. The disclosure that European banks are holding bad Detroit paper confirms my suspicions as to the true principles of the so-called safety guidelines capital requirements. They are no such thing, they are crony rules designed to prop up risky government paper. In time, as more government regions from Puerto Rico to Chicago and Los Angeles go into a financial crisis stage, we will learn of even more global bank exposure to debt from these sectors.”
http://www.economicpolicyjournal.com/2013/08/the-secret-plot-to-prop-up-municipal.html
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