January 2011 Archives

Reshuffling the Banking Pack

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by Roy C. Smith

As hated as they are, bailouts, until recently, were accepted as being a necessary evil: a safety net to preserve the financial system after regulatory measures fail. But bailouts today are deeply resented, despite the fact that they usually work to stop panics, and are much cheaper than letting everything go up in smoke. Recently the Fed admitted that it alone deployed $3.3 trillion to stabilize massively disrupted credit markets after the bankruptcy of un-bailed out Lehman Bros.

Banks are now told that the era of too-big-to-fail is over. The Dodd-Frank Act has forbidden bailouts, and will subject systemically important banks to "enhanced" regulation to prevent failure. Governments generally have loaded these banks with new taxes, fees and other expenses to recover taxpayer losses. Together with higher capital requirements of Basel III and a variety of regulations yet to be written, the composite new regulatory package hopes to suppress big banks' appetites for risk.

But, having removed the safety net, what the government needs is a fail-safe financial system. So far they haven't achieved it.

Read the full opinion editorial on eFinancialNews.com.

A VoxEU.org column by Carlos Tavares argues that now is the hour of the regulator in the financial sector. He references two past VoxEU.org pieces by Regulating Wall Street contributing authors. The first is Viral Acharya and Nobel Laureate Robert Engle's piece on improving transparency in bond and derivatives markets, and the second is Viral Acharya, Thomas Cooley, Matthew Richardson, Richard Sylla and Ingo Walter's critical assessment of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Read the full column on VoxEU.org.

The New Art of Central Banking

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Can central bankers stop worrying about inflation and learn to love the new financial stability culture? A new article in Institutional Investor magazine includes comments from Regulating Wall Street Co-Editor Viral Acharya, and highlights the NYU Stern Systemic Risk Rankings as a tool for financial regulators. 

Read the article on InstitutionalInvestor.com
by Viral V. Acharya 

Slightly over two years since the collapse of Lehman Brothers, the financial sector reforms in developed economies are still evolving. One definitive piece of legislation has been the Dodd-Frank Act, passed earlier this year by the US Congress, to restore US financial stability. How effective would the Act's provisions have been, starting in 2003-2004 (years during which the housing credit boom took hold) and until the fall of 2008 (when the financial system had to be rescued)? Would the Act have prevented the enormous build-up of leverage on financial balance sheets all betting against a material correction in the US housing market?

Read the full opinion editorial on Livemint.com.
The January 3, 2011 edition of Tax Notes includes a review of Regulating Wall Street by contributing editor Lee A. Sheppard. She writes, "Readers should read Regulating Wall Street to understand why, in the face of market failures and copious evidence that Wall Street is unproductive, Congress and regulators labored mightily to resurrect the financial intermediation racket just as it existed on September 12, 2008."

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors