Using default strategy for systemic risks

Christian Noyer, Bank of France head in this speech says:

Le Figaro – Are you in favour of more stringent requirements for larger banks, considered to be systemic?

Christian Noyer – This should be an option rather than automatic. Who would have thought that Northern Rock or Bear Stearns could be regarded as systemic? I think that, in the context of each country, a wide variety of instruments is necessary to allow supervisors to ensure that banks increase their loss-absorbing capacity. In particular, the experience of national supervisors should be taken into account. In France, for example, we adjusted, as permitted by Basel II, the ratios required of each institution based on its risk profile. The experiment was conclusive. The amounts that each bank had to raise from the State during the crisis proved consistent with the requirements that we had determined. Other countries that have not had this experience are likely to implement automatic rules.

Hmm.. I doubt whether in any country the option would be automatic i.e. stringent requirements for larger banks. It would be a case by case study. But I liked this usage of behavioral economics terms in financial regulation debate.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: