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Have Big Banks Gotten Safer?

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Have Big Banks Gotten Safer?

Brookings Institution,

5 min read
5 take-aways
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What's inside?

More rules and regulations may not have reduced the risk of large banks failing.

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Editorial Rating

9

Qualities

  • Analytical
  • Innovative

Recommendation

In response to the 2008 financial crisis, policy officials around the globe crafted a vast new regulatory architecture to decrease the risk of large financial institutions failing and thus prevent future systemic shocks to the economy. Economists Lawrence H. Summers and Natasha Sarin assess the outcome of these efforts. They argue that the safety of the world’s biggest financial organizations may not be as robust as government leaders believe. getAbstract recommends their rigorous and discerning report to policy makers and financial professionals.

Summary

The 2008 financial crisis began with the unraveling of the global financial system, brought on by the failures of several major banking and investment institutions. Subsequently, policy officials constructed a new regulatory apparatus. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act was at its center. Additional new US rules pushed banking entities to hold higher levels of capital, raise liquidity and pass stress tests. Internationally, new Basel III guidelines followed a similar course in addressing banks’ risk-adjusted capital levels. ...

About the Authors

Natasha Sarin is a PhD candidate at Harvard University, where Lawrence H. Summers is president emeritus and a professor of economics.

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