U.S.Tells Banks They Need $75 billion More in Capital

Your discussion of the Bank's capital requirements suggest that they will be allowed to improve their debt equity ratios by converting government owned preferred stock into common stock. (U.S.Tells Banks They Need $75 billion More in Capital, Friday, May 8: A1, A3).

This is absurd. As Mr. Ely, quoted in your article, states: Such conversion will not add one penny to the banks' ability to pay lenders if there is a run on the bank. The accounting ratios may be improved through a stroke of the pen, but they are a fiction. In the real world, government owned preferred stock, though perhaps not privately owned preferred stock, is as good as an equity position because it is inconceivable that the government would call in that debt if the bank got into difficulty.

Let's be real: force the banks to raise the needed capital in the private markets, or with an additional infusion of government money. Only new money will really strengthen the banks' position.