Connect them where it hurts. The missing piece of the puzzle

Lorenzo Esposito

No 151, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The crisis has shown that banks that are too big to fail are at the core of the international financial system. These institutions are thus at the centre of a powerful wave of re-regulation of the banking system. Overall, the proposals developed to strengthen the capacity of big banks to weather future crises, starting with Basel 3, point in the right direction, but they are missing an essential element. SIFIs have a peculiar nature. Their most salient feature is that because of their size, interconnectedness and similar strategies, a crisis of one tends to become a crisis of all. Hence, it is essential to have a mechanism in place to link them together beforehand. The paper analyzes measures that can serve this end. It then proposes a tool designed to give SIFIs a shared interest in behaving correctly, i.e. taking into account the externality implied by their very existence.

Keywords: financial crisis; too big to fail; macro-prudential; stability fund (search for similar items in EconPapers)
JEL-codes: E60 G01 G28 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_151_13

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