Author: Squam Lake Working Group on Financial Regulation
This Working Paper, the second in a series from the Squam Lake Working Group distributed by the Center for Geoeconomic Studies, argues that regulators consider systemic effects when setting bank capital requirements. Everything else the same, capital requirements should be proportionately higher for larger banks, banks that hold more illiquid assets, and banks that finance more of their operations with short-term debt. But capital requirements are not free. When designing capital requirements that address systemic concerns, regulators must weigh the costs such requirements impose on banks during good times against the benefit of having more capital in the financial system when a crisis strikes.
Sebastian Mallaby argues that Treasury Secretary Timothy Geithner's ideas on regulation and wind-downs are sensible, but they won't prevent the next crisis or save taxpayers from the cost, making it imperative that the financial industry take on less risk.
In this Nikkei op-ed, Roger Kubarych analyzes the early challenges facing the Obama administration with regards to the economic crisis. He writes that the ugly stock market response to the Geithner plan will make it all the harder to recapitalize the U.S. financial system without taxpayers footing the bill.
Speakers: William H. Donaldson, Stephen Friedman, and Ernest Patrikis Presider: John Gapper
A Council on Foreign Relations meeting discussing the possibility of rethinking financial market regulation to avoid cycles of boom and bust. This meeting is part of the McKinsey Executive Roundtable Series in International Economics.
The U.S. Treasury's refusal to save Lehman Brothers suggests its willingness to assume risk to protect private institutions may be at an end. If so, what are the broader implications for global markets and the U.S. economy?
One year ago, with spectacular timing, a Wall Streeter named Richard Bookstaber published a book on financial engineering. He called it "A Demon of Our Own Design," and his argument was that a new breed of "quants" had created a system too complex to be manageable. In this Washington Post op-ed, Sebastian Mallaby agrees with Dr. Bookstaber that—in the wake of Bear Stearns—modern financial engineering has become harder to defend.
Investment has grown rapidly in China in recent years, reaching more than 40 percent of GDP. Despite good progress on bank and enterprise reforms, this paper from the IMF argues that weaknesses remain that could contribute to inefficient investment decisions, and that the regulation of state lending to state-owned companies needs to be reformed further if productive investment is to be maintained.
Four former chairmen of the U.S. Securities and Exchange Commission have welcomed ongoing moves toward greater global convergence on market regulatory standards, saying they are key to the success of U.S. investors.
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Campbell evaluates the implications of the Boko Haram insurgency and recommends that the United States support Nigerian efforts to address the drivers of Boko Haram, such as poverty and corruption, and to foster stronger ties with Nigerian civil society.
Koblentz argues that the United States should work with other nuclear-armed states to manage threats to nuclear stability in the near term and establish processes for multilateral arms control efforts over the longer term.
The authors argue that it is essential to begin working now to expand and establish rules and norms governing armed drones, thereby creating standards of behavior that other countries will be more likely to follow.
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