Financial sector policies in the crisis World bank Programme of Seminar, Istanbul, 3 October 2009
Minutes||8 October 2009|
Christine Cummings, US federal Reserve Bank of New York
Crockett - between bailouts and bankruptcies there are only these special resolution regimes, can these work for large institutions?
Cummings - we need to get rid of "too big to fail" perception, so need a credible mechanism to resolve failure. The obstacles are the lack of comprehensive rules and the differing legal systems across borders; need also earlier action to prevent problems including through supervisory stress tests
Laker - we would like to see "orderly exits", not 0 failure rates; you need other strong banks to do the take overs of failing institutions
Zeti - we have enacted new legal frameworks and are using the deposit insurance corporation which was a legacy of the Asian financial crisis
Buiter - there should be no fear of bankruptcy, it is just a legal act to give haircuts to various parties; the problem of regulatory capture looms large, and the quasi fiscal role of central banks means they have question marks on their independence
Sayeed - the failed banks were not actually big mostly (ie Northern Rock); on derivatives it is contractual so a zero-sum game and risk goes both ways - the fundamental flaw was the mark to market accounting rules, accounting just can't handle the contracts! This means we need better information and transparency as the solution, non-arbitrageable rules
Crockett - what about systemic risk regulators? And the transfer of regulation across borders?
Cummings - there is consensus on the need for a systemic risk regulator, but the form is up for debate; we need to pimprove relations between supervisors in "times of peace", need a lead supervisor in the place where banks are chartered
Laker - we are debating the extra tools that will be needed in Basle forums; agree that we need supervisors to play tennis with other supervisors, not the bankerws.
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Published: 8 October 2009 , last edited: 8 October 2009
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