Too Big or not Too Big? That is the Question!
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30 November 2009Nicolas Michellod
A bit more than one year ago in the middle of the financial crisis, some banks and one big insurer have been saved by governments since their bankruptcy would have put the whole international financial system in great danger. "Too big to fail" is the expression that has been widely used to caracterize this policy. Since then, two G20 summits took place. What came out of these meetings in the general opinion's mind? Let's be frank: a lot of good intentions but nothing really concrete! While the first one held in April this year in London was more to demonstrate to the populations that policy makers were aware of the seriousness of the situation, the second one that took place in Philadelphia a few weeks ago gave birth to a consensus regarding traders bonuses, which of course does not solve the big issue. However, some good intentions can sometimes lead to interesting ideas. I personally consider that the creation of the Financial Stability Board (FSB) following the London G20 Summit represents a good step towards a better regulation and consequently an improved protection of the international financial system. Yesterday The Financial Times published a list of 30 financial companies, whose failure could represent a systemic risk worldwide according to the FSB. Insurers are considered to be risky for the system expecially when they start diversifying from insurance into complex financial engineering. This has notably been the case with AIG and SwissRe. Too big or not too big? That is the question and now let's see what the next steps will be. Normally this list is due "to address the issue of systemically important cross-border financial institutions through the setting up of supervisory colleges" as mentioned in the Financial Times article. Concrete measures will certainly take time but at least there are concrete intentions.