ZURICH: The Financial Stability Board (FSB), charged by the G20 to coordinate national regulation in response to the financial crisis, on Saturday welcomed US proposals to limit banks’ size and trading activities.
The proposals are among a range of options the board is considering as its addresses the risk of banks being “too big to fail,” it said in a statement.
Major European economies have offered support for US President Barack Obama’s plan, which could rewrite the world financial order, but indicated they had no plans to follow suit.
The FSB is considering several other options to address the “too big to fail” problem including targeted capital, leverage, and liquidity requirements, improved supervisory approaches and simplification of firm structures.
“A mix of approaches will be necessary to address the TBTF problem, given the different types of institutions and national and cross-border contexts involved,” the FSB said.
Meanwhile, one year in, Obama faces a perilous economic choice. He can’t pull back the stimulus too quickly, despite the public’s concerns about rising deficits, because that could kill a fragile recovery. If he steps too hard on the throttle to create more jobs, responding to another voter imperative, he risks feeding inflation and restarting the dangerous cycle.
The Republican Senate upset in Massachusetts shows that the political risks of any bold move are enormous.
Either way, the road ahead probably means painfully slow job creation accompanied by more government debt and higher taxes.
“Without significant changes to tax and government spending policies, the budget outlook will deteriorate rapidly even after the costs associated with the financial crisis abate,” said Mark Zandi of Moody’s Economy.com, a former adviser to Republican Sen. John McCain who now counsels congressional Democrats.
When Obama took office in January 2009, financial markets were teetering, jobs were evaporating and global economic activity was tanking faster than in the 1930s. A depression seemed imminent.
Now the economy is back from the brink, thanks largely to the most aggressive global government intervention in history.
