{"id":271331,"date":"2010-01-29T10:42:38","date_gmt":"2010-01-29T15:42:38","guid":{"rendered":"tag:http:\/\/www.economist.com,2009:21004551"},"modified":"2010-01-29T10:42:38","modified_gmt":"2010-01-29T15:42:38","slug":"bail-in-roundtable-speak-softly-and-carry-a-big-stick","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/271331","title":{"rendered":"Bail-in roundtable: Speak softly and carry a big stick"},"content":{"rendered":"

Glenn Hubbard is the Dean and Russell L. Carson Professor of Finance and Economics at Columbia Business School. For an explanation of this roundtable, click here<\/a>.<\/em><\/p>\n

\"\"PAUL CALELLO and Wilson Ervin have written a thought-provoking piece on how to resolve troubled complex financial institutions. In contrast to Treasury Secretary Geithner\u2019s unproven assertions that the large bail-outs we have witnessed were unavoidable and Paul Volcker\u2019s misguided proposal to limit bank size and activities, the Calello-Ervin proposal hits the mark.<\/p>\n

The elephant in the room of policy discussions of financial regulatory reform is \u201ctoo big to fail\u201d. As long as institutions are perceived to be too big to fail, it will be difficult, if not impossible, to limit effectively excessive risk taking. Cutting the Gordian knot requires a clearly spelled out resolution mechanism for complex financial institutions, such as FDICIA imposes for the resolution of failed banks.<\/p>\n

The Calello-Ervin proposal and related proposals would require Congressional action, but such action is worth it and should be of much higher priority than the financial regulatory bills in the Congress or the Obama administration\u2019s post-Massachusetts-election conversion to the \u201cVolcker Rule\u201d.<\/p>\n

Last May, Hal Scott, Luigi Zingales, and I outlined an alternative bail-in proposal in the Wall Street Journal<\/em>. As with the Calello-Ervin proposal, current claimants on the troubled bank would assume more risk, rather than simply passing the risk on to taxpayers.<\/p>\n

One very attractive feature of the Calello-Ervin proposal and related bail-in proposals is that by specifying clear resolution mechanisms, they may facilitate easier renegotiation among creditors. One reason, for example, that sovereign debt restructurings have been so difficult is that the presence of the global taxpayer (in the form of the IMF) contributes uncertainty about the size of the pie to be divided. In the case of the complex financial institutions, the too-big-to-fail doctrine and the prospect of shifting risk to taxpayers makes private resolution very difficult. As Mssrs Calello and Ervin note, clear resolution authority can solve this problem.<\/p>\n

The Obama administration\u2019s approach to the financial crisis channels President Franklin Delano Roosevelt at every opportunity. The Calello-Ervin proposal and other bail-in proposals channel President Theodore Roosevelt instead: Speak softly and carry a big stick.<\/p>\n","protected":false},"excerpt":{"rendered":"

Glenn Hubbard is the Dean and Russell L. Carson Professor of Finance and Economics at Columbia Business School. For an explanation of this roundtable, click here. PAUL CALELLO and Wilson Ervin have written a thought-provoking piece on how to resolve troubled complex financial institutions. In contrast to Treasury Secretary Geithner\u2019s unproven assertions that the large […]<\/p>\n","protected":false},"author":5146,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-271331","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/271331","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/5146"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=271331"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/271331\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=271331"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=271331"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=271331"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}