Saturday, April 18, 2009


"Why aren't we debating limiting the size of such large [financial] institutions? Nothing will be too big to fail if institutions are kept small enough to prevent systemic risk from becoming a significant problem. ... Let's note that too big to fail isn't limited to financial entanglements. If a company has too many employees or too many suppliers to be allowed to fail, then it is also too big", Tom Wolf (TW) letter to the WSJ, 27 March 2009.

"Stronger regulation alone won't prevent firms from becoming so large that their failure threatens the financial system, current and former Federal Reserve officials said Tuesday. ... Gary Stern, the president of the ... Minneapolis [Fed] ... said in a speech at the Brookings Institution that policy makers in recent years had ignored warnings about firms becoming too big, and, as a result, raised the costs of the current financial crisis. ... Regulators can identify when markets underprice risk, he said, but they can't always forecast events accurately. ... Firms seen as 'too big to fail' can enjoy lower borrowing costs based on the expectation that creditors will be backed by the government. [Alan] Greenspan said capital requirements should be set to erase any such benefits for big companies. ... Top government officials are stuggling to address the growing too-big-to-fail problem throughout the financial system. ... In an interview, Mr. Stern said creditors must face the potential for losses that are 'sufficiently significant' for them to pay more attention to risks, but not so great that it creates the 'spillover' that hurts the broader system", my emphasis, Sudeep Reddy at the WSJ, 1 April 2009.

Yes, TW.

Regulators can? Really? Besides, there are no TBTF banks, see my 12 December 2007 post:

1 comment:

Anonymous said...

I'm sorry IA...

But it seems like most actions by regulators and legislators are to protect the TBTF firms... I guess when GS staffs the Treasury that is bound to happen...

Regulatory capture is a nice name for corruption. And we'll write some new rules to avert it... but how do we really create a system that is less corruptible?