If one of us fails, everyone suffers…
Trillions of taxpayers’ dollars were needed to save the very institutions that provoked the worst financial crisis in 60 years. The bailouts seem to have succeeded, but to stop the same thing happening again, the structure of the global financial system has to be rethought, notably to deal with the risks linked to counterparty failure and contagion.
Writing in the Wall Street Journal, Adrian Blundell-Wignall of the OECD puts forward a proposal to contain risk by addressing what banks actually do. The proposal does not require draconian Glass-Steagall divestment of securities businesses from commercial banks. But it does require some important structural changes for banking conglomerates to make sure that the failure of one does not mean trouble for all.
Useful links: The Financial Crisis: Reform and Exit Strategies