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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
Published by: Economic and Political Weekly
Stable URL: http://www.jstor.org/stable/40278662
Page Count: 4
You can always find the topics here!Topics: Banking regulation, Economic regulation, Bank assets, Banking crises, Funding, Bank capital, Bank loans, Taxes, Bank liquidity, Credit risk
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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.
Economic and Political Weekly © 2009 Economic and Political Weekly