NDLI: The elephant in the room: The need to deal with what banks do

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The surge in borrowing needs of OECD governments. Revised estimates for 2009 and 2010 Outlook.

The elephant in the room: The need to deal with what banks do

Regulatory issues related to financial innovation

The financial industry and challenges related to post-crises exit strategies

Expanded guarantees for banks. Benefits, costs and exit issues.

Insurance companies and the financial crisis

Private pensions and the financial crisis. How to ensure adequate retirement income from DC pension plans.

Responding to the crisis. Changes in OECD government debt issuance procedures, portfolio management and primary dealer systems.

Current and structural developments in the financial systems of OECD enhanced engagement countries

Policy framework for effective and efficient financial regulation. General guidance and high-level checklist.

The elephant in the room: The need to deal with what banks do

Content Provider	OECD iLibrary
Author	Blundell-Wignall, Adrian Wehinger, Gert Slovik, Patrick
Abstract	Contagion risk and counterparty failure have been the main hallmarks of the current crisis. While some large diversified banks that focused mainly on commercial banking survived very well, others suffered crippling losses. Sound corporate governance and strong riskmanagement culture should enable banks to avoid excessive leverage and risk taking. The question is whether there is a better way, via leverage rules or rules on the structures of large conglomerates, to ensure volatile investment banking functions do not dominate the future stability of the commercial banking and financial intermediation environment that is so critical for economic activity. While there is a main consensus on the need for reform of capital rules, dynamic provisioning, better co-operation for future crises, centralised trading of derivatives etc., the question is whether such reforms will be sufficient if they do not address contagion and counterparty risk directly. The world outside of policy making is waiting for a fundamental reassessment of banks’ business models: what banks are supposed to do and how they compete with each other. It is the "elephant in the room" on which some policy makers have not yet had the time or inclination to focus. This article emphasises not only the need for transparent and comparable accounting rules and for improvements in corporate governance, but also supports the imposition of a group leverage ratio to provide a binding capital constraint (that Basel riskweighted rules have been unable to achieve) and proposes a Non- Operating Holding Company Structure (NOHC) – reforms that are essential to deal with contagion and counterparty risk that are so integral to the ‘too big to fail’ issue.
Page Count	27
Starting Page	1
Ending Page	27
Volume Number	2009
Issue Number	2
Language	English
Publisher	OECD Publishing
Publisher Date	2010-03-30
Access Restriction	Open
Subject Keyword	Finance and Investment
Content Type	Text
Resource Type	Article

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