The financial crisis held a lesson that many have ignored: it is the contagiousness of financial crises, not banks’ size, that matters. After all, any list conjured up in 2006 of institutions that were “too big to fail” would not have included Northern Rock, Bradford & Bingley, IKB, Bear Sterns, or even Lehman Brothers.
LONDON – It seemed that a new model for global governance had been forged in the white heat of the financial crisis. But now that the ashes are cooling, different perspectives on bank regulation are emerging on either side of the Atlantic.
The emphasis in Europe has been on regulating financial markets with a view to moderating future crises. Credit mistakes are made during the boom, not during the crash, so the argument goes. Better regulation and monetary policy during the boom years, therefore, could limit the scale of any bust.
By contrast, the emphasis in the United States has been on finding market-friendly ways to contain spillovers from bank failure. Policy debates in the US are chiefly preoccupied with ensuring that banks are never “too big to fail”; that private investors rather than taxpayers hold “contingent capital,” which in a crash can be converted into equity; and that “over-the-counter” markets’ functioning be improved through greater reliance on centralized trading, clearing, and settlements.
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The long-standing economic consensus that interest rates would remain low indefinitely, making debt cost-free, is no longer tenable. Even if inflation declines, soaring debt levels, deglobalization, and populist pressures will keep rates higher for the next decade than they were in the decade following the 2008 financial crisis.
thinks that policymakers and economists must reassess their beliefs in light of current market realities.
Since the 1990s, Western companies have invested a fortune in the Chinese economy, and tens of thousands of Chinese students have studied in US and European universities or worked in Western companies. None of this made China more democratic, and now it is heading toward an economic showdown with the US.
argue that the strategy of economic engagement has failed to mitigate the Chinese regime’s behavior.
LONDON – It seemed that a new model for global governance had been forged in the white heat of the financial crisis. But now that the ashes are cooling, different perspectives on bank regulation are emerging on either side of the Atlantic.
The emphasis in Europe has been on regulating financial markets with a view to moderating future crises. Credit mistakes are made during the boom, not during the crash, so the argument goes. Better regulation and monetary policy during the boom years, therefore, could limit the scale of any bust.
By contrast, the emphasis in the United States has been on finding market-friendly ways to contain spillovers from bank failure. Policy debates in the US are chiefly preoccupied with ensuring that banks are never “too big to fail”; that private investors rather than taxpayers hold “contingent capital,” which in a crash can be converted into equity; and that “over-the-counter” markets’ functioning be improved through greater reliance on centralized trading, clearing, and settlements.
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