Another financial crisis

Promise of reform of financial system stalls as recovery arrives

Published on Market Watch, by Greg Robb, Sept. 18, 2009.

WASHINGTON (MarketWatch) – The Group of 20 leaders may strut and preen next week at their summit in Pittsburgh about how they saved the world economy and made sure a crisis never happens again, but many analysts have already turned their backs on the group, convinced no serious reform plans are on the table …

… Financial reform:

Outside of government circles, there is a general consensus that the G20 should mandate that banks hold much more capital than they have in the past to guard against taking on too much debt.  

In the same vein, the G20 should be tackling this issue of banks that are “too big to fail.” This would require shrinking the companies back to a manageable size, Johnson said.

The financial crisis would have been a good time to scale them back, but the opportunity seems to have passed.

Now governments should impose insurance premiums on the biggest banks to give them the incentive to shrink, Johnson said.

But there is no appetite for forcing banks to raise more capital, either in European capitals or in Washington, analysts said.

The Obama administration’s proposed new rules for Wall Street are not very radical — and maintain the system pretty much the way it was prior to the crisis, said Barry Eichengreen, a professor at the University of California at Berkeley.

Garten said he wanted to see the leaders take a bold step and create some form of global central bank to oversee the operations of global financial institutions.

“Financial institutions straddle the world,” Garten said. “Domestic regulation cannot encompass the whole thing.” (full text).

Link: Market Watch on wikipedia.

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