From the FT:
King calls for the breakup of banks Chris Giles
Darling responds to King’s bank speech Chris Giles FT video

Elsewhere:
Mervyn King’s speech in full Bank of England
Volcker fails to sell a bank strategy NY Times
The consensus on big banks begins to move The Baseline Scenario
Mervyn King calls for banks to split as public finances take record hit The Times

By Per Kurowski

There is no reason to believe the world would be better if financial regulators provided extra incentives to those who, perceived as having a lower default risk, are already favoured by lower interest rates, or punish further those who, perceived as more risky, are already punished by higher interest rates. In fact, the opposite is probably true. Continue reading "Free us from imprudent risk-aversion"

By Michael Pomerleano

I was in Chicago last week to participate in the 12th Annual International Banking Conference sponsored by the Federal Reserve Bank of Chicago and the World Bank. The answer to the question posed — have the rules of the global financial game really changed? — is a resounding no.

This was my first week back in the US after being away for three years, and the conference gave me an opportunity to gauge the state of the debate there. Compared to my two years at the Bank of International Settlements in Basel and my year at the Bank of Israel, the openness of the debate and the quality of the discussions in Chicago were refreshing. However, in the US — the epicentre of the crisis and the country that is supposed to lead the world toward reform and out of the crisis — I expected a far more forceful articulation of remedial measures. Continue reading "Another crash is all too possible"

From the FT:

Martin Wolf: This time will never be different

Mohamed El-Erian: Return of the old ways of thinking threatens recovery

Wolfgang Münchau: A recognition of the deep roots of the crisis

Robert Shiller: In defence of financial innovation

Elsewhere:

Urban Jermann and Vincenzo Quadrini, VOX EU: Paying more attention to financial shocks

Paul Krugman, New York Times: Crowding in

Carlo Bastasin, Peterson Institute: Is It wise or productive for the United States to press germany to abandon Its export-driven economy?

Markus Jäger, VOX EU: Can China be the world’s growth engine?

From the FT:

Jean-Claude Trichet: Europe has mapped its monetary exit

Timothy Geithner: Financial stability depends on more capital

Gillian Tett: A matter of retribution

Elsewhere:

Mark Kleinman: Reforming regulatory benefit cost analysis

Viral Acharya:   Systemic risk and deposit insurance premiums

Paul Krugman:  How did economists get it so wrong?

By Masahiro Kawai and Michael Pomerleano

In a previous article in the Economists’ Forum, we expressed skepticism about the capacity of the Financial Stability Board to implement sound international financial stability regulatory architecture. We concluded that the prospects were more promising on the domestic front; this led to a discussion on creating a financial stability regulator at the national level.

The Obama administration has proposed that the Federal Reserve should become the overseer of financial stability in the US. The central bank would gain power to monitor risks across the financial system and sweeping authority to examine any firm that could threaten financial stability. The nation’s biggest and most interconnected firms would be subject to heightened oversight. Continue reading "Bolstering financial stability regulation"

By Marc Flandreau

Our research shows investment banks are no longer selective when they underwrite emerging market debts. This is because responsibility for certification has been outsourced to rating agencies, leading to the emergence of a market for securities than is riskier than previous counterparts.

The debate on the responsibility of rating agencies for failing to see the making of the sub-prime crisis and even contributing to it through their behaviour neglects one important aspect of the matter which I came across with colleagues. Continue reading "Rating agencies vs. investment banks: Who’s minding the shop?"

By Andre Sapir

Imagine the US was facing the current crisis with the following situation: only 30 of its 50 states belong to the dollar area; most of the southern states are outside the dollar area and so is New York, home of the US financial centre; the seat of the US government is in Washington, but dollar area chairman Ben Bernanke operates from Pittsburgh and secretary Tim Geithner is mainly governor of Vermont, one of the smallest US states, with a population of roughly half a million.

Absurd? Yet this is exactly what the European Union looks like, with only 16 of its 27 member states belonging to the euro area; most of the eastern states and the UK, home of the EU financial centre, outside the euro area; the seat of the EU institutions in Brussels, but ECB president Jean-Claude Trichet operating from Frankfurt and Eurogroup chairman Jean-Claude Juncker mainly the prime minister of Luxembourg. Continue reading "How the EU could stop the global crisis becoming a European problem"