Steve Forbes interviews FDIC Chair Sheila Bair on the credit crunch, systemic risk, “too big to fail”, toxic assets, shadow banking and others. The questions have the former presidential candidate’s less-government orientation and it’s a good interview.
So, instead of hoping that these risks will be competently managed … we also need a “fail-safe” system where if any one large institution fails, the system carries on without breaking down. We need to reduce systemic risk by limiting the size, complexity, and concentration of our financial institutions. We need to create regulatory and economic disincentives aimed at limiting the size and number of systemically important financial firms. For example, we need to impose higher capital requirements on them in recognition of their systemic importance, to make sure they have adequate capital buffers in times of stress.
If you don’t want to watch the video, here’s the transcript.
I am doubtful any regulatory agency can prevent a catastrophe because they are human and are subject to mob mentality just like investors are. I see any such effort as simply reducing the odds of such an event. In this recent disaster, there were no tangible safeguards in place.
I think she is one of the brightest leaders of all the regulators out there, but she was at the helm during this crisis and we saw little of her until things went wrong.
Was she held back by the prior administration or simply now sees the light?