It has been strongly asserted by some regulators, including the Federal Deposit Insurance Corporation, that the Dodd-Frank Act now permits the safe resolution of any systemically important financial institution that becomes distressed. I disagree.
Failures among some of our largest financial institutions remain a significant potential danger to our economy. This risk is currently greatest in Europe.
Going forward, a large bank may indeed be allowed by its government to fail, but the resulting impact on other market participants could be quite damaging. This is especially so if more than one such institution fails around the same time.
The likelihood of big-bank failures will become lower after the scheduled increases in regulatory bank capital and liquidity mandated under the proposed “Basel III” international accord. Yet, to a significant degree, the fragilities I explain in How Big Banks Fail remain.
Given the continuing potential for large bank failures, additional measures should be taken to reduce this failure risk and to mitigate the contagion effects of a collapsing major bank or a large financial institution that operates outside of the regulated banking sector.
These measures should include the “hardening” of key market infrastructure, such as central transaction clearing utilities. Some regulations, for example those covering the safety of money market funds, should be further tightened.
The ongoing European sovereign debt crisis has replaced the “subprime crisis” as a fomenter of systemic financial risk. Other forms of financial crises could follow. These may include a global currency crisis, a U.S. or Japanese sovereign debt crisis, the breakdown of a financial market through a failure of information technology, or recurrent collapses of large real estate markets.
[T]he Holocaust transformed our whole way of thinking about war and heroism. War is no longer a proving ground for heroism in the same way it used to be. Instead, war now is something that we must avoid at all costs—because genocides often take place under the cover of war. We are no longer all potential soldiers (though we are that too), but we are all potential victims of the traumas war creates. This, at least, is one important development in the way Western populations envision war, even if it does not always predominate in the thinking of our political leaders.Carolyn J. Dean, Interview of February 01, 2011
The dominant premise in evolution and economics is that a person is being loyal to natural law if he or she attends to self’s interest and welfare before being concerned with the needs and demands of family or community. The public does not realize that this statement is not an established scientific principle but an ethical preference. Nonetheless, this belief has created a moral confusion among North Americans and Europeans because the evolution of our species was accompanied by the disposition to worry about kin and the collectives to which one belongs.Jerome Kagan, Interview of September 17, 2009
It has been strongly asserted by some regulators, including the Federal Deposit Insurance Corporation, that the Dodd-Frank Act now permits the safe resolution of any systemically important financial institution that becomes distressed. I disagree.
Failures among some of our largest financial institutions remain a significant potential danger to our economy. This risk is currently greatest in Europe.
Going forward, a large bank may indeed be allowed by its government to fail, but the resulting impact on other market participants could be quite damaging. This is especially so if more than one such institution fails around the same time.
The likelihood of big-bank failures will become lower after the scheduled increases in regulatory bank capital and liquidity mandated under the proposed “Basel III” international accord. Yet, to a significant degree, the fragilities I explain in How Big Banks Fail remain.
Given the continuing potential for large bank failures, additional measures should be taken to reduce this failure risk and to mitigate the contagion effects of a collapsing major bank or a large financial institution that operates outside of the regulated banking sector.
These measures should include the “hardening” of key market infrastructure, such as central transaction clearing utilities. Some regulations, for example those covering the safety of money market funds, should be further tightened.
The ongoing European sovereign debt crisis has replaced the “subprime crisis” as a fomenter of systemic financial risk. Other forms of financial crises could follow. These may include a global currency crisis, a U.S. or Japanese sovereign debt crisis, the breakdown of a financial market through a failure of information technology, or recurrent collapses of large real estate markets.