Banking's Past, Present, and Future
The Financial Times reports that a study conducted by Bank of England researchers finds that the current level of risk-weighted capital held by banks (about 7 percent) is woefully inadequate to protect against future financial crises. Calibrating their model with data from 1821-2001, the authors find that an astounding 53 percent capital to risk-weighted assets … Read more
The 600-plus page report of the US Financial Crisis Inquiry Commission should make for interesting reading for those with the patience to read it. It would be useful to wade into the argument between the Commission, which argues that the crisis was “avoidable” and the Financial Times, which argues that it was not. Maybe later. … Read more
Goldman Sachs second-in-command Gary Cohn warned those assembled at the World Economic Forum in Davos, Switzerland that the drive to impose more regulation on banks could cause the next crisis by pushing risky activities towards hedge funds and other lightly supervised entities. According to the Financial Times, Cohn said: “In the next few years, the … Read more
Let’s hope. Just as there are recurring themes in literature—and flies in the wake of a garbage truck–there a few things that we can reliably count on in the wake of a financial crisis. In the immediate aftermath comes damage control. The central bank intervenes. The legislature and executive agree on emergency measures. Bankers keep … Read more
In his Financial History of the United States (1879), Albert Bolles wrote “Thought but little more than a century has passed since the first Continental Congress met, in September, 1774, the financial history of the United States during the subsequent period is thickly strewn with financial experiments amply rewarding investigation.” Recent European Union efforts to … Read more
Barry Eichengreen has some deservedly sharp words for European Commission, the European Central Bank, and the German government over the Irish “rescue package.” Likening it to the punitive reparations burden imposed on German at the end of World War I, Eichengreen points out that the bailout does not, in fact, reduce Ireland’s debt one bit, … Read more
Writing in the Financial Times, Stephen Roach concludes that it is “[t]ime to revamp the Fed’s flawed mandate.” Roach argues that maintaining financial stability should be added to the Fed’s current dual mandate of maximum employment and price stability. Such a change would be ineffective at best, destructive at worst. It would be ineffective because … Read more
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In a bitter editorial, The Irish Times laments the country’s financial difficulties in historical terms. Was it for this? IT MAY seem strange to some that The Irish Times would ask whether this is what the men of 1916 died for: a bailout from the German chancellor with a few shillings of sympathy from the … Read more
Citibank chief Vikram Pandit warns in the Financial Times against excessive increase in capital and liquidity requirements. This is a tough argument to make in the aftermath of a serious crisis in which banks and other financial institutions were caught short on both counts. The op-ed below was co-authored with Masami Imai, who is is … Read more