The Economist. Reimagining Finance.
A new draft policy getting some notice around the world and in Washington in particular, is looking at some strong steps to set right the financial system that fell apart in 2008. The paper titled “Financial Reform: A Framework for Financial Stability” contains some muscular stuff, according to The Economist. The 18-point agenda includes “strict” capital requirements on high-risk proprietary activities, that is, bets made using their own money. For banks and non-banks alike, the report calls for a more refined analysis of liquidity in stressed markets and more robust contingency-planning. Central banks should have a stronger role in policing such things, the authors argue, and need to be especially vigilant in good times, when credit is expanding quickly. They should also be more involved in supervising bank safety and soundness—although, to safeguard central-bank integrity, the role of chief firefighter is best played by others once trouble ignites. The other important message is that a global crisis requires a global fix. International co-ordination should go beyond rule-making closer to harmonisation including enforcement,
say the authors, and more needs to be done to curb the uneven application of international rules at national level—although they shed little light on how this could be achieved. More in The Economist.