{"id":12640,"date":"2015-12-01T18:07:35","date_gmt":"2015-12-01T23:07:35","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=12640"},"modified":"2015-12-01T18:07:35","modified_gmt":"2015-12-01T23:07:35","slug":"failure-at-the-financial-stability-board-by-simon-johnson-project-syndicate","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2015\/12\/01\/failure-at-the-financial-stability-board-by-simon-johnson-project-syndicate\/","title":{"rendered":"Too-big-to-fail: three flaws in FSB approach | Simon Johnson"},"content":{"rendered":"<p><a href=\"http:\/\/www.project-syndicate.org\/commentary\/financial-stability-board-failure-by-simon-johnson-2015-11\"><img data-recalc-dims=\"1\" decoding=\"async\" class=\"alignnone size-full\" src=\"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2015\/12\/2b25ff99c4a4230c09ec1d77eaba1ae7.jpeg?w=525&#038;ssl=1\" \/><\/a><\/p>\n<p>From Simon Johnson, professor at MIT Sloan and former chief economist at the IMF:<\/p>\n<blockquote><p>The world\u2019s largest banks remain too big to fail, and this is likely to have dire consequences in the near future.<\/p>\n<p>&#8230;.Unfortunately, there are three flaws in the FSB\u2019s [Financial Stability Board] framework that will prevent it from being effectively applied to large global banks.<\/p>\n<p>First, by definition, global banks operate across borders, and there is no agreement among different national authorities regarding how to respond in a crisis. There is, arguably, better communication than there was before 2008, but when the chips are down, this will be worth little. The countries involved have different legal rules, different procedures for protecting local assets, and different court systems. A major international treaty could address all of this, but the immediate prospects for one are nonexistent.<\/p>\n<p>Second, the FSB proposes to require a Total Loss Absorbing Capacity for all large banks. But TLAC is just jargon for saying that these banks should fund themselves with both equity and \u201cbail-in-able debt\u201d \u2013 debt that can be converted to equity (or wiped out) when there is an official resolution event. All this really means is that some debt can fall dramatically in value when government officials pull the trigger.<\/p>\n<p>This may seem elegant in theory, but it is completely unworkable in practice. In any real crisis, the authorities\u2019 real fear is that the fall in one asset price (the equity value of big banks) will cause other asset-price declines \u2013 leading to a broader contraction of credit. The idea of \u201closs-absorbing debt\u201d is an oxymoron.<\/p>\n<p>Third, what really matters for financial systems is the extent of equity financing \u2013 including how much equity banks are required to have. Current levels are so low \u2013 debt funds around 95% of total credit exposure in most big US banks (and a slightly higher share in big European banks) \u2013 that banks\u2019 equity can be substantially wiped out by even moderate negative shocks.<\/p>\n<p>The good news is that the Fed increasingly seems to be taking this point on board \u2013 and inching toward higher capital requirements for the biggest banks.\n<\/p><\/blockquote>\n<p>Source: <a href=\"https:\/\/www.project-syndicate.org\/commentary\/financial-stability-board-failure-by-simon-johnson-2015-11\">Failure at the Financial Stability Board by Simon Johnson &#8211; Project Syndicate<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>From Simon Johnson, professor at MIT Sloan and former chief economist at the IMF: The world\u2019s largest banks remain too big to fail, and this is likely to have dire consequences in the near future. &#8230;.Unfortunately, there are three flaws in the FSB\u2019s [Financial Stability Board] framework that will prevent it from being effectively applied &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/thepatientinvestor.com\/index.php\/2015\/12\/01\/failure-at-the-financial-stability-board-by-simon-johnson-project-syndicate\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Too-big-to-fail: three flaws in FSB approach | Simon Johnson&#8221;<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[57],"tags":[],"class_list":["post-12640","post","type-post","status-publish","format-standard","hentry","category-stock-markets"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - 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The combined assets of the 6 largest US banks is bigger now than in 2008. Simon Johnson, Professor of Entrepreneurship at M.I.T. Sloan School of Management, writes: A growing number of serious-minded politicians are starting to support the point made by Jon\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7326,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/27\/forget-too-big-to-fail-kill-the-fractional-reserve-banking-system\/","url_meta":{"origin":12640,"position":1},"title":"Forget too-big-to-fail: Kill the fractional reserve banking system","author":"ColinTwiggs","date":"March 27, 2013","format":false,"excerpt":"Interesting discussion on Bloomberg about currency-backed deposits and equity-funded loans. The fractional reserve banking system is the primary cause of instability and asset bubbles in the global economy, allowing banks to create money out of thin air. Credit expansion above the rate of real GDP growth has only two possible\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7003,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/03\/16\/feds-fisher-too-big-to-fail-banks-are-crony-capitalists-reuters\/","url_meta":{"origin":12640,"position":2},"title":"Fed&#039;s Fisher: Too-big-to-fail banks are crony capitalists &#124; Reuters","author":"Colin Twiggs","date":"March 16, 2013","format":false,"excerpt":"Pedro Nicolaci da Costa reports The largest U.S. banks are \"practitioners of crony capitalism,\" need to be broken up to ensure they are no longer considered too big to fail, and continue to threaten financial stability, a top Federal Reserve official said on Saturday......[Richard Fisher, president of the Dallas Fed]\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":8298,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/08\/19\/bloated-business-of-banking-the-australian\/","url_meta":{"origin":12640,"position":3},"title":"Bloated business of banking | The Australian","author":"ColinTwiggs","date":"August 19, 2013","format":false,"excerpt":"Adam Creighton discusses the likelihood of taxpayers being asked to bail out too-big-to-fail banks. In Australia that probability is now 100 per cent. Standard & Poor's, a ratings agency, gives Australia's biggest four banks a AA rating explicitly because taxpayers will provide \"extraordinary support\" to their creditors in any crisis,\u2026","rel":"","context":"In &quot;Australia &amp; NZ&quot;","block_context":{"text":"Australia &amp; NZ","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/australia-nz-countries-regions\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":8459,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/09\/22\/emperors-of-banking-have-no-clothes-bloomberg\/","url_meta":{"origin":12640,"position":4},"title":"Emperors of Banking Have No Clothes | Bloomberg","author":"ColinTwiggs","date":"September 22, 2013","format":false,"excerpt":"The too-big-to-fail problem for banks is greater today than it was in 2008. Since then, the largest U.S. banks have become much larger. On March 31, 2012, the debt of JPMorgan Chase was valued at $2.13 trillion and that of Bank of America Corp. at $1.95 trillion, more than three\u2026","rel":"","context":"In &quot;Banks &amp; Interest Rates&quot;","block_context":{"text":"Banks &amp; Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":13073,"url":"https:\/\/thepatientinvestor.com\/index.php\/2016\/04\/03\/australias-banks-are-too-big-to-get-sick-apra\/","url_meta":{"origin":12640,"position":5},"title":"Australia&#8217;s banks are &#8216;too big to get sick&#8217;: APRA","author":"ColinTwiggs","date":"April 3, 2016","format":false,"excerpt":"Sally Rose at The Age quotes APRA's executive general manager of supervision and support, Charles Littrell: \"Australia has taken a big national bet on the rise of Asia, in particular on the rise of China, from a developing country to developed status,\" Mr Littrell said. He described APRA's stance of\u2026","rel":"","context":"In &quot;Stock Markets&quot;","block_context":{"text":"Stock Markets","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/stock-markets\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/12640","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=12640"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/12640\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=12640"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=12640"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=12640"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}