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Wednesday, October 11, 2017

Making Too Big To Fail Costlier: A Check on Empire-Building

Testifying before the Financial Crisis Inquiry Commission on September 2, 2010, Ben Bernanke, chairman of the Federal Reserve, observed, “As of 2003 and 2004, there really was quite a bit of disagreement among economists about whether there was a bubble, how big it was, whether it was a local or a national bubble. We certainly were aware it was a risk factor, but frankly by the time it was clear it was a bubble” it was too late to address it through monetary policy. The NYT also reported that he spoke favorably of forcing huge banks to hold much more capital, particularly if they were systemically important — so much capital, indeed, that being big would be costly. He advocated that the increased capital requirements should include capital that is more aligned with risk and able to absorb losses more effectively, and that works in a countercyclical manner, so that banks have more of it during times of stress. Does his position make sense? Does it go far enough? 

The answer is at "Making Too Big to Fail Costly."

Source: http://www.nytimes.com/2010/09/03/business/03commission.html?_r=1&ref=business