New York Fed to hear new theory on financial meltdown
"Thakor says it is important to determine the root causes of the financial crisis in order to prevent it from happening again. 'We had this double fragility in the financial system from high borrower and bank leverage....
To get at root causes of the current crisis and prevent future meltdowns, Thakor offers these proposals:
- create an agency to gather information and monitor the interconnectedness of institutions, including the shadow banking system
- increase the minimum regulatory capital requirements for banks (a controversial, but necessary calibration according to Thakor)
- provide thoughtful research-based policy prescriptions that halt the tide of over-regulation
Blaming executive compensation or pumping more liquidity into the system is not going to fix the financial crisis, says Thakor."
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