The Transatlantic Banking Crisis: Lessons and EU Reforms

Paul Welfens

No 2, IZA Policy Papers from Institute of Labor Economics (IZA)

Abstract: The key dynamics of the transatlantic banking crisis are analyzed – with emphasis on the fact that the banking disaster of 2007/08 was not really a surprise –, and the five key requirements for restoring stability and efficiency in the EU/OECD banking sector are highlighted. Most important, however, is the introduction of a new tax regime designed to encourage bankers to take a more long term time horizon in decision-making and to reduce excessive risk-taking. Banks and funds should be taxed not only on the basis of profits but also on the basis of the variability – read variance – of the rate of return on equity: the higher the variability over time the higher the tax to be paid. The quality and comprehensiveness of banks’ balance sheets must be radically improved and all off-balance sheet activities must be included in future total balance sheets. The medium term structure of employment in terms of the breakdown nontradables/tradables will have to adjust.

Keywords: USA; globalization; EU; financial market reforms; banking (search for similar items in EconPapers)
JEL-codes: E50 F01 F30 G01 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2009-04
New Economics Papers: this item is included in nep-ban and nep-eec
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Published - published as 'The Transatlantic Banking Crisis: Lessons, EU Reforms and G20 Issues' in: Paul J.J. Welfens and Cillian Ryan (eds.), Financial Market Integration and Growth: Structural Change and Economic Dynamics in the European Union, Springer, Heidelberg et al., 2011, 49 - 126

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