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Causes, Cures and Myths

Avinash D. Persaud
Economic and Political Weekly
Vol. 44, No. 13, Global Economic & Financial Crisis (Mar. 28 - Apr. 3, 2009), pp. 59, 61-63
Stable URL: http://www.jstor.org/stable/40278662
Page Count: 4
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Causes, Cures and Myths
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Abstract

Our sights must be set on moderating the recurring cycle of financial crises and our solutions must go beyond the instruments, institutions or individuals of the day. Blaming offshore financial centres or the complexity of derivatives for the current problems misses the point. This article proposes counter-cyclical capital charges to push banks to develop incentive packages that are more encouraging of longer-term behaviour and a valuation method based on the relative maturity of an intermediary's funding. What the latter will do is allow any institution in a liquidity crisis to set up its own internal "bad bank" mechanism so long as it has sufficient long-term funding to support it.

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