The long-term fix for financial crises

Every financial crash is followed by a relatively short period of regulatory soul-searching on Wall Street that gives rise to new proposals. This time around, reform sounds like a good idea. The industry's financial sophistication has gotten ahead of the regulatory bodies in a lot of ways. The man in the middle, Timothy Geithner, has offered some remedies in a column in the Financial Times. He would ask a lot more of banks in terms of capital, risk management and liquidity. Second, he would upgrade the system so that it can better stand default by a big institution. Third, the risks imposed by institutions beyond regulated banks--read: hedge funds--needs to be addressed somehow; he does not seek capital requirements on their part. Fourth, the regulatory system needs to be simplified, along the lines outlined by Henry Paulson, and globalized. In addition, some of the new liquidity facilities may need to be permanent. All of this makes sense, but implementation will be difficult if not impossible.  

For more:
- here's the column in the Financial Times

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