It is helpful at this point to consider the big picture, the underlying political economy of bank capital. In a laissez faire world with no central bank and no financial regulation, banks would sink or swim with no expectation of being bailed out by the state or its agencies if

I was privileged to meet Milton Friedman when I was a student in Japan in 1969. The lecture that he gave that August afternoon in the Nihon Keizai Shimbun Hall in Tokyo on “Monetary versus Fiscal Policy” had a profound impact on my thinking.