Current bank oversight failed to prevent the financial crisis. Let’s not prescribe more of the same.
The G-20 meeting in London earlier this year set the direction for reforming the regulation of financial services to prevent a recurrence of the present crisis. Still to come is the hard work of hammering out the details, which will determine if a new regulatory system can succeed—without imposing excessive costs or triggering unintended consequences.
The causes of the current crisis resemble those of many previous ones: banks that didn’t have enough capital lent too much, too easily, relying on wholesale funding that disappeared when the inevitable concerns about asset quality arose. Yet there are important differences this time. The current problem started in what were regarded as the world’s safest and most sophisticated markets and spread globally, carried by securities and derivatives that were thought to make the financial system safer.
See full Press Release.
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