Big Banks' Tall Tales by Simon Johnson - Project Syndicate - 0 views
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In the second narrative, the world’s largest banks remain too big to manage and have strong incentives to engage in precisely the kind of excessive risk-taking that can bring down economies. Last year’s “London Whale” trading losses at JPMorgan Chase are a case in point. And, according to this narrative’s advocates, almost all big banks display symptoms of chronic mismanagement.
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But a great myth lurks at the heart of the financial industry’s argument that all is well. The FDIC’s resolution powers will not work for large, complex cross-border financial enterprises. The reason is simple: US law can create a resolution authority that works only within national boundaries. Addressing potential failure at a firm like Citigroup would require a cross-border agreement between governments and all responsible agencies.
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I had the opportunity to talk with senior officials and their advisers from various countries, including from Europe. I asked all of them the same question: When will we have a binding framework for cross-border resolution?CommentsView/Create comment on this paragraphThe answers typically ranged from “not in our lifetimes” to “never.” Again, the reason is simple: countries do not want to compromise their sovereignty or tie their hands in any way.
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