Brookings: Topics - Financial Institutions

Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble

Mon, 23 Nov 2009 00:00:00 GMT

What really caused the great economic crisis of the past year? Should the Fed’s powers be stripped away, per legislation sponsored by Rep. Ron Paul that recently passed the House Financial Services Committee? In an effort to help inform the debate, Brookings Fellow Douglas Elliott and Senior Fellow Martin Baily ponder the importance of public perceptions of the causes of the crisis - and how they will affect chances of financial regulatory reform.

Fixing the Financial Sector in the Wake of the Economic Crisis

Mon, 16 Nov 2009 10:37:21 GMT

Sen. Christopher Dodd (D-Conn) has introduced legislation to reform the financial sector in the wake of the recent economic crisis. Senator Dodd’s proposal calls for consolidating the four federal financial regulatory agencies into a single regulator. Fellow Douglas Elliott says regulation consolidation is definitely in order.

Dodd’s Single Banking Regulator Proposal Promising

Tue, 10 Nov 2009 00:00:00 GMT

Senate Banking Committee Chairman Christopher Dodd is introducing legislation to consolidate banking regulation into one federal agency. Doug Elliott says having one regulator for “safety and soundness” and another focused on consumer protection is promising, should help avoid regulatory arbitrage and could hopefully prevent another financial crisis.

The Stock Market Crash and Our Current Recession

Mon, 02 Nov 2009 12:00:00 GMT

This month marks 80 years since the Wall Street crash of 1929 that was one cause of the Great Depression. Alice Rivlin says the 1929 crash led to the creation of the financial and social safety net measures that have helped prevent today's economic crisis from being a full-blown depression.

Initial Comments on the Draft House Bill on Systemic Risk and “Too Big to Fail”

Wed, 28 Oct 2009 00:00:00 GMT

As the financial system continues to stabilize, the House Financial Services Committee has drafted legislation intended to prevent future crises. The latest bill, which has been endorsed by the Obama administration, focuses on systemic risk and financial institutions that are deemed to be “too big to fail.” Douglas Elliott analyzes the 253-page bill, saying he thinks the enhanced resolution authority is essential, but he raises serious concerns about the structure of the council intended to tackle systemic risks.

Systemic Risk in the Financial System: Insights from Network Science

Fri, 23 Oct 2009 00:00:00 GMT

The financial system is comprised of networks of connectivity, Ross Hammond dicusses how these networks may have enabled disruptions initially affecting only a few financial actors to rapidly spill over into a system-wide crisis.

The G-20, the "Istanbul Decisions" and the Way Forward

Thu, 08 Oct 2009 00:00:00 GMT

The fall global economic agenda is well underway with the completion of the G-20 Pittsburgh Summit and the IMF and World Bank Annual Meetings in Istanbul. Kemal Derviş discusses the key themes coming out of these “historic” meetings, highlighting the essential roles of both the informal and formal channels of global economic governance and the way forward after the crisis.

What About Microeconomics?

Mon, 05 Oct 2009 00:00:00 GMT

Robert Crandall and Clifford Winston respond to Paul Krugman's recent New York Times Magazine article which laments the current state of macroeconomics. The authors call attention to the fact that Krugman did not mention the state of microeconomics which, they argue, has not suffered any serious intellectual setbacks from the current Great Recession.

Growth After the Storm? A Longer Run Perspective on the Global Economy

Sun, 04 Oct 2009 00:00:00 GMT

During a lecture at the IMF-World Bank 2009 Annual Meetings, Kemal Derviş discussed global growth prospects following the economic crisis and the role that supply side factors and macroeconomic management can play.

Consumer Financial Protection: Advantages, Dangers and Should it be a New Agency?

Wed, 30 Sep 2009 00:00:00 GMT

Martin Baily argues that if there had been better consumer protection prior to the financial crisis, it would have ameliorated the severity of the crisis and might even have forestalled it. The best choice for the United States is a single conduct-of-business regulator and the Securities and Exchange Commission is the natural home for such a consumer protection agency.

Too Big to Fail: “Systemic Importance” and Moral Hazard

Wed, 30 Sep 2009 00:00:00 GMT

Gary Burtless examines the events of the past eighteen months and concludes that the status quo poses great risk to the U.S. finanical system and thus the current regulatory regime cannot be left unchanged.

Strengthening and Streamlining the Federal Supervision of Financial Institutions

Tue, 29 Sep 2009 00:00:00 GMT

Martin Baily testified before the Senate Banking Committee on the creation of a single micro prudential regulator, combining the regulatory and supervisory functions now carried out by the Fed, the OCC, the OTS, the SEC and the FDIC. He calls attention to the Australia model as a good positive example where a single prudential regulator has worked well.

Modelling the Global Financial Crisis

Mon, 28 Sep 2009 00:00:00 GMT

Warwick McKibbin and Andrew Stoeckel use modelling to explore the economic effects of a global financial crisis where businesses and households unexpectedly switch between a pessimistic view on risk and then to a more moderate temporary scenario.

What Does International Experience Tell Us About Regulatory Consolidation?

Mon, 21 Sep 2009 00:00:00 GMT

Examining the structure of financial regulation to see what lessons there may be for the United States, Martin Baily and Adriane Fresh dispel the idea that the experience of other countries makes it a waste of time to attempt substantial consolidation of regulatory agencies in the United States.

Monetary Policy and Financial Stability: An Address by José de Gregorio

Thu, 17 Sep 2009 14:00:00 GMT

Event Information:

September 17, 2009, 2:00 PM to 3:30 PM

On September 17, the Brookings Institution will host Dr. José de Gregorio, governor of the Central Bank of Chile. Governor de Gregorio will outline his views on how best to structure monetary policy and regulatory frameworks in emerging markets to promote macroeconomic and financial stability.

The Scouting Report: Global Financial Crisis, One Year On

Wed, 16 Sep 2009 12:30:00 GMT

Event Information:

September 16, 2009, 12:30 PM to 1:30 PM

The collapse of Lehman Brothers in September 2008, combined with the government takeover of Fannie Mae and Freddie Mac, helped trigger the worst financial crisis in the United States since the Great Depression. In this week’s edition of the Scouting Report, Douglas Elliott—a former investment banker and current fellow at Brookings—answered your questions about the financial crisis and where we stand one year later. Fred Barbash, senior editor at Politico, moderated the discussion.

The Future of Financial Institutions After the Global Financial Crisis

Tue, 15 Sep 2009 10:21:31 GMT

It’s been one year since the economic crisis hit hard with the failure of Lehman Brothers, which reverberated throughout the financial sector and the world. President Obama gave a speech on Wall Street pressing for financial system reforms to prevent a future similar crisis. Vice President and Economic Studies co-director Karen Dynan evaluates the impact of the government’s intervention over the past year and where we go from here.

A Year in Turmoil: Remarks Following an Address by Fed Chairman Ben Bernanke

Tue, 15 Sep 2009 00:00:00 GMT

On September 15, one year after the Lehman collapse, the Brookings Institution hosted a forum to explore the tumultuous events of last September, where financial markets stand today and the status of regulatory reforms designed to prevent the next financial crisis. Ted Gayer participated in a panel discussion following Fed Chairman Ben Bernanke's keynote address.

A Year in Turmoil: An Address By Fed Chairman Ben Bernanke

Tue, 15 Sep 2009 10:00:00 GMT

Event Information:

September 15, 2009, 10:00 AM to 12:00 PM

This week marks the one-year anniversary of Lehman Brothers' collapse. Federal Reserve Chairman Ben Bernanke delivered a keynote about the tumultuous events of last September at a Brookings forum on Tuesday. Brookings Vice President Karen Dynan moderated a panel with other experts on the state of financial markets and regulatory reform.

Could a Resurgent Global Economy Relapse into Global Imbalances?

Mon, 14 Sep 2009 00:00:00 GMT

A year after the bankruptcy of Lehman Brothers and the ensuing near collapse of the U.S. financial system, Eswar Prasad reflects on what led to these circumstances and urges for coordinated solutions to avoid further global imbalances.

The Government Takeover of Fannie Mae and Freddie Mac

Thu, 03 Sep 2009 16:50:10 GMT

It’s been one year since Fannie Mae and Freddie Mac had to be taken over by the government to prevent their collapse. Ted Gayer talks about what went wrong and why these government-sponsored enterprises were treated as "too big to fail."

The Federal Reserve's Independence Is at Risk

Thu, 20 Aug 2009 00:00:00 GMT

John L. Thornton, Glenn Hubbard and Hal Scott say that the future of the Federal Reserve as a lender of last resort is in jeopardy. Because the Fed has compromised its economic credibility and political independence during the financial crisis, they argue, the Obama administration should give it full authority to lend against good collateral only but restrict emergency bailout power to the federal Treasury alone.

Is the U.S. Economy Stabilizing?

Mon, 10 Aug 2009 12:39:31 GMT

Since crashing last October, with a continuing free fall for much of the first part of 2009, the stock market has been gradually climbing back up to healthier levels. Douglas Elliott says the market rally is one sign that the economy is stabilizing – at least in the near term.

Singh’s Big Chance to Unchain the Indian Economy

Sun, 09 Aug 2009 00:00:00 GMT

Although India’s economy has weathered the global financial crisis quite well, Eswar Prasad says the present political and economic circumstances in India give Prime Minister Manmohan Singh a chance to deliver real reforms, which are crucial for sustained growth that does not leave behind much of the population.

Strengthening and Streamlining Prudential Bank Supervision

Thu, 06 Aug 2009 00:00:00 GMT

Financial sector regulation was one of several causes of the financial crisis that has devastated the U.S. economy and spread globally. We can do better than the current bewildering alphabet soup of regulators, says Martin Baily, by simplifying and streamlining regulation into a single micro prudential regulator.

Systemic Risk and the Role of the Federal Reserve

Wed, 29 Jul 2009 00:00:00 GMT

Alice Rivlin recommends that the Federal Reserve not be given any major new regulatory duties over specific institutions, but instead be given responsibility for monitoring the stability of the financial system and new tools to reduce emerging systemic risks.

Evaluating TARP and Our Economic Outlook

Mon, 27 Jul 2009 11:10:18 GMT

Treasury’s special inspector general issued a blistering report about the $750 billion TARP program, saying it has not been transparent in managing taxpayers’ money and hasn’t required enough disclosure from firms participating in the program. Douglas Elliott says despite the report, the TARP program appears to have prevented a financial meltdown, adding that the economy is showing some small signs of improvement.

Bernanke Signals Slow Recovery, Defends Fed's Powers

Wed, 22 Jul 2009 00:00:00 GMT

Federal Reserve Chairman Ben Bernanke told a Senate panel on Wednesday that economic recovery should begin soon, albeit slowly at first. Martin Baily and New Jersey Republican Congressman Scott Garrett spoke with Ray Suarez about the testimony.

Reducing Systemic Risk in the Financial Sector

Tue, 21 Jul 2009 00:00:00 GMT

Testifying before the House Financial Services Committee, Alice Rivlin said that financial sector regulators failed to head off the recent crisis because "no one was explicitly charged with spotting the regulatory gaps and perverse incentives that had crept into our rapidly changing financial structure in recent decades." Rivlin outlined regulatory changes that might prevent another catastrophic financial meltdown.

Protecting Household Income during the Economic Crisis

Wed, 15 Jul 2009 00:00:00 GMT

As unemployment continues to climb, questions have arisen as to whether the stimulus package is working, how well it was designed and when it will have an impact. Gary Burtless examines its composition, finding that efforts at creating a social safety net and fiscal relief for the states were appropriately targeted and are working.

Structuring the Consumer Financial Protection Agency

Wed, 01 Jul 2009 00:00:00 GMT

The Obama administration recently released a more detailed legislative proposal for its proposed Consumer Financial Protection Agency (CFPA). Douglas Elliott believes the proposal appears to retain the intended benefit of a clear focus on consumer protection while addressing seriously the potential for destroying useful financial products. It also aims to prevent the new agency from “empire building.”

Stable Banks, Stable Finance: The Canadian Experience

Tue, 23 Jun 2009 08:30:00 GMT

Event Information:

June 23, 2009, 8:30 AM to 11:00 AM

As banking and financial systems in the United States, Europe, and around the world have been shaken to their foundations over the past two years, Canada’s banking and overall financial system has proven sound and stable. On June 23, Brookings and the Woodrow Wilson Center's Canada Institute will host an examination of Canada’s overall financial system, particularly its approach to financial market regulation, and explore potential lessons for other countries.

What Obama's Financial Regulation Reform Announcement Means

Wed, 17 Jun 2009 00:00:00 GMT

The long-awaited Obama administration plan to reform financial regulation has arrived. The good news, says Douglas Elliott, is that the specific proposals are virtually all sensible and constructive. The bad news is that there were some missed opportunities.

Reviewing the Administration’s Financial Reform Proposals

Wed, 17 Jun 2009 00:00:00 GMT

President Obama’s financial reform proposals are all sensible, necessary reforms. Unfortunately, some bolder steps have been left out due to the expectation of intense opposition from entrenched interests, says Douglas Elliott. He analyzes the administration’s plan, including parts that he believes did not go far enough.

The U.S. Financial and Economic Crisis: Where Does It Stand and Where Do We Go From Here?

Mon, 15 Jun 2009 00:00:00 GMT

The economy is showing signs that it is likely bottoming out and heading toward a weak recovery, but we need to keep our optimism—and our policy actions—in check, argue Martin Baily and Douglas Elliott. Many risks remain for both the banking system and the larger economy, and they argue for increased focus on existing financial rescue plans and the banking sector.

Do Post-Bailout Banks Need New Rules?

Tue, 09 Jun 2009 00:00:00 GMT

The Treasury Department has cleared the way for 10 big banks to start repaying $68.3 billion in taxpayer aid. The administration, however, plans to introduce new compensation guidelines that would apply to financial companies, including those that returned taxpayer money. What new federal restrictions, if any, should be imposed on the banks leaving TARP? More broadly, does this move by the Treasury Department show that its financial recovery programs are working? Douglas Elliott and other experts discuss these issues.

The Global Economic Crisis and Mexico: Challenges for Recovery

Thu, 28 May 2009 00:00:00 GMT

As part of the "Global Economic Crisis" study series, Martinez- Diaz spoke at the Center for National as part of a discussion focused on the impact of the global economic crisis on stability in Mexico and what that means for the United States. He outlined five crucial economic challenges facing the country that its leadership must address in order to stimulate a full and sustainable recovery.

Thresholds in the Process of International Financial Integration

Tue, 19 May 2009 00:00:00 GMT

The financial crisis has re-ignited the debate about the merits of financial globalization and its implications for growth, especially for developing countries. In a new paper, Eswar Prasad and co-authors present a framework for certain economic “thresholds,” such as institutional quality, that once met, can increase the benefits of financial openness.

Bank Stress Test Results

Tue, 12 May 2009 00:00:00 GMT

All in all, the stress tests were useful and the results were encouraging, says Douglas Elliott. However, we have a lot of pain to get through before this crisis is over. If we're lucky, he says, it will remain bad for awhile. If we're unlucky, it could still get extremely ugly.

Implications of the Bank Stress Tests

Mon, 11 May 2009 00:00:00 GMT

Although there was good news from the Fed’s recent “stress tests” on the 19 largest banks, it is important to not take excessive comfort from what remains essentially a highly educated guess as to the future of the banks in a very uncertain environment, says Douglas Elliott. While we may well have turned the corner, we can be far from certain that the solvency crisis in banking is over.

Stress Test Loan Losses and Profit Expectations: A Comparison

Fri, 08 May 2009 00:00:00 GMT

Doug Elliott analyzes the banking regulator’s stress test results by comparing them with other detailed analyses of the financial state and prospects of the banks, finding that the government's assumptions are more conservative than the IMF's, but less than the pessimists'. But he notes the real stress test will be comfortably surviving 2009 and 2010.

Responding to the Financial Crisis: A Conversation with Senator Bob Corker

Fri, 08 May 2009 13:00:00 GMT

Event Information:

May 08, 2009, 1:00 PM to 2:00 PM

Since the passage of the Emergency Economic Stabilization Act of 2008, officials have struggled to get ahead of the evolving financial crisis. The Initiative on Business and Public Policy at Brookings hosted a conversation with Senator Bob Corker (R-Tenn), a member of the Senate Banking Committee, to discuss the federal response to both the financial crisis and the broader economic downturn.

Regulating and Resolving Institutions Considered “Too Big to Fail”

Wed, 06 May 2009 00:00:00 GMT

In testimony to the Senate Banking Committee, Martin Baily and Robert Litan discussed the "too big to fail" conundrum, saying large institutions are necessary but must be regulated in a way that at least partially offsets the risks they pose to the rest of the financial system. They also say Congress needs to provide more Treasury TARP funds, maybe on a large scale, but that such a move will ultimately cost less than bank nationalization.

Interpreting the Bank Stress Tests

Mon, 04 May 2009 00:00:00 GMT

The Obama administration has released the long-awaited results of the bank stress tests, saying some have enough capital to weather the recession, while others receive a regulatory blessing. Douglas Elliott says there is some good news, but not to overinterpret until we know the tests’ rigor. The real stress test will be making it through 2009 and 2010 without losing too much money.

IMF Bonds: Details and Implications

Mon, 04 May 2009 00:00:00 GMT

The IMF is considering issuing bonds as a way to increase the amount of money it has available to lend to countries struggling in the wake of the financial crisis. In a new article, Eswar Prasad discusses the bond proposal, including the potential structure and impacts on the demand for U.S. treasuries.

Know Thy Neighbor: What Canada Can Tell Us About Financial Regulation

Thu, 23 Apr 2009 00:00:00 GMT

The Obama administration and Congress are working rapidly to design a new regulatory architecture for the nation’s financial system. “They might consider taking a page or two from a model next door—Canada,” write Pietro Nivola and John C. Courtney, as they explore why the Canadian banking system remains solvent and solid amid the current global crisis.

Bank Nationalization: A Survival Manual

Tue, 21 Apr 2009 00:00:00 GMT

Several prominent economists continue to push for the government to nationalize the nation’s weakest banks before they bleed the Treasury and taxpayers dry. Douglas Elliott says nationalization is risky and costly and therefore should be the last resort, but policymakers need to be ready in case it is needed. He writes a 15-step “survival manual” with suggestions for minimizing the damage from nationalization, especially the costs to taxpayers.

Risk, Reward and the Road to Economic Recovery

Mon, 20 Apr 2009 09:00:00 GMT

Event Information:

April 20, 2009, 9:00 AM to 11:00 AM

Moving the economy toward sustainable long-term economic growth requires a more complete understanding of not only the root causes of the economic crisis, but both how it spread first to the financial sector and then to the real economy. On April 20, Brookings’s Initiative on Business and Public Policy hosted a discussion to explore Wall Street's role in triggering the economic crisis and the role Wall Street leaders may play in leading us out.

The Financial Crisis and the Rule of Law

Tue, 14 Apr 2009 00:00:00 GMT

Close political ties between Wall Street and the government played a sizeable role in creating a regulatory environment in which financial institutions became dangerously over-exposed to risk. Wall Street firms whose behavior helped create the world-wide crisis are now working diligently to prevent regulatory changes that can help restore the financial system to long-term health, notes Gary Burtless. However, he disagrees with some observers who say bank nationalization is the answer.

America’s Financial Crisis: The End of an Era

Tue, 14 Apr 2009 00:00:00 GMT

Barry Bosworth and Aaron Flaaen summarize some research on the origins of the financial crisis and trace the evolution of the credit panic that hit in late 2008, its impact on the real economy, and the extraordinary policy actions that have been taken to mitigate the economic losses.

Why Geithner’s Plan is the Taxpayers’ Curse

Wed, 01 Apr 2009 00:00:00 GMT

H. Peyton Young shows that the Geithner proposal for pricing toxic assets is a peculiar type of auction in which the taxpayer is cursed by competition among the buyers. The more that investors compete, the lower are the expected returns for the taxpayers. Naturally, the windfall goes to the banks.

The London G-20 Summit: Addressing the Global Financial Crisis

Wed, 01 Apr 2009 12:43:39 GMT

On April 2, leaders of the world’s 20 largest economies will begin talks in London to focus on solutions for the global financial crisis. Johannes Linn previews the meeting and says there a number of actions they must agree on to help mitigate the economic crisis.

The Crisis is More Than Economics

Wed, 01 Apr 2009 00:00:00 GMT

At the London G-20 Summit, the leaders of the major new "great powers"—China, India and Brazil—will be prominent. Brookings scholar Colin Bradford and Martin Albrow, visiting senior fellow at the Centre for the Study of Global Governance, reflect on how the G-20 will only fill the vacuum at the center if it addresses the broader systemic crisis of responsibility and accountability that arises out of the West’s worship of the free market.

What the G-20 Wants: London Summit

Wed, 01 Apr 2009 00:00:00 GMT

On April 2, international leaders, including representatives of regional organizations, will meet in London for the second G-20 Summit. The Chicago Council on Global Affairs and the Managing Global Insecurity project at Brookings have launched a special online forum asking experts and policy-makers from the G-20 nations to submit commentary on what their country hopes to accomplish at the meeting.

Facing—and Fixing—"Too Big to Fail"

Tue, 31 Mar 2009 09:15:00 GMT

Event Information:

March 31, 2009, 9:15 AM to 11:30 AM

As public outrage grows over bonuses paid to employees at private firms being bailed out by the government, many are asking whether some companies are "too big to fail" and the consequences of propping up firms at any cost. The Initiative on Business and Public Policy at Brookings hosted Minneapolis Federal Reserve President Gary H. Stern and Vice President Ron J. Feldman to discuss the issue, along with former Federal Reserve Chairman Alan Greenspan.

Regulating Systemic Risk

Mon, 30 Mar 2009 00:00:00 GMT

The Treasury Department recently released its plan to fix the financial system, which rightly concentrates on reducing systemic risk, argues Robert Litan. While there are legitimate concerns about vesting such large responsibilities with any financial regulator, as long as there are financial institutions whose failure could lead to calamitous financial and economic consequences, then some arm of the federal government must oversee systemic risk and do the best it can to make that oversight work.

Three Cheers for Treasury’s Plan for Regulating Systemic Risk

Mon, 30 Mar 2009 00:00:00 GMT

Robert Litan discusses the Treasury’s six part plan for significantly reducing systemic risk in the financial system. He says the six elements in the Treasury plan, if enacted into law, should significantly reduce the likelihood of single or multiple failures of systemically important financial institutions in the future, as well as the losses to taxpayers for protecting their creditors.

The London Summit: Can the G-20 Fix the Financial Crisis?

Mon, 30 Mar 2009 11:00:00 GMT

Event Information:

March 30, 2009, 11:00 AM to 12:30 PM

Leaders of the world’s 20 largest economies, including President Barack Obama, will gather in London on April 2 for summit focused on the global financial crisis. On March 30, Brookings hosted a discussion with leading experts on the critical issues facing the leaders at the G-20 Summit.

The G-20 London Summit 2009

Thu, 26 Mar 2009 00:00:00 GMT

Leaders of the Group of 20 (G-20) countries met in London on April 2 for their second summit on the global financial crisis. In a new set of articles, Brookings experts addressed the critical issues for policy-makers and offered guidelines for more effective global coordination.

Japan’s Lost Decade: Lessons for the United States

Thu, 26 Mar 2009 09:00:00 GMT

Event Information:

March 26, 2009, 9:00 AM to 12:20 PM

On March 26, the Center for Northeast Asian Policy Studies and the Initiative on Business and Public Policy at Brookings, in collaboration with Nikkei and the Japan Center for Economic Research, hosted leading Japanese and American experts to discuss Japan's experience and its lessons for the United States.

The G-20 Summit and the Financial Crisis’ Impact on Latin America

Thu, 26 Mar 2009 12:39:12 GMT

As the global economic crisis continues, Mauricio Cárdenas says emerging economies in Latin America and elsewhere are hit especially hard. He says G-20 members must urge the multilateral banks to continue lending to the region and adds that without such assistance the crisis will only worsen.

Pre-emptive Bank Nationalization Would Present Thorny Problems

Wed, 25 Mar 2009 00:00:00 GMT

A number of prominent observers continue to call for a swift nationalization of the nation’s weakest banks. Douglas Elliott argues that while nationalization would provide an appealing emotional catharsis and has some advantages, the harm would be greater. Nationalization would be costly, difficult and risky. Elliott walks through the initial step of taking over a major banking group and demonstrates the problems that lie therein.

The Public-Private Investment Program: An Assessment

Mon, 23 Mar 2009 00:00:00 GMT

Treasury Secretary Timothy Geithner’s plan announced on Monday to move some $1 trillion in toxic assets off of the balance sheets of the banks helps remove the uncertainty from the financial system although it will not fix the credit crisis on its own, according to Douglas Elliott. Strong concerns remain about whether the Public Private Investment Program (PPIP) will succeed—the program could either fizzle or prove to be too expensive for the taxpayer—but there are also some grounds for hope.

What Will It Take to Stabilize the Banks?

Tue, 17 Mar 2009 00:00:00 GMT

In this article Martin Baily and Douglas Elliott discuss what it will take to stabilize the banks. They call for an adequate amount of capital to be injected into the banks and for the troubled assets be moved out of the banks or their impact neutralized. They agree that both of these actions will be very expensive for the taxpayers, involving significant risk of large future losses, but warn that the costs of stabilizing the banks will be very large indeed, and the sooner policymakers face up to that, the better.

The Financial Crisis and a Flaw in Corporate Capitalism

Tue, 17 Mar 2009 00:00:00 GMT

The current financial crisis and the events that preceded it do not reveal a new problem in capitalism, says Gary Burtless. They do, however, highlight problems that have been obvious to careful observers for many years, and in some cases for centuries. One central problem underscored by the present crisis is the disconnect between the financial interests of senior company managers and the owners of the companies they work for.

From the G-20 to AIG: The Unfinished Turmoil in Global Banking and Finance

Mon, 16 Mar 2009 00:00:00 GMT

In an interview with NPR's On Point, scholars Eswar Prasad and Kenneth Rogoff discuss the current banking and global finance issues, and the importance of global leadership as the G-20 Summit approaches.

Lawrence Summers on the Economic Crisis and Recovery

Fri, 13 Mar 2009 10:30:00 GMT

Event Information:

March 13, 2009, 10:30 AM to 11:30 AM

Responding to the historic economic crisis, White House National Economic Council Director Lawrence H. Summers urged the country to “not exchange a painful recession for another unsustainable expansion.” The country should pursue policies that produce durable and sustainable growth, Summers said at a Brookings forum where he discussed the economic crisis and recovery.

The U.S. is Still a Capitalist Country

Wed, 11 Mar 2009 00:00:00 GMT

As the New Deal took shape, President Franklin Roosevelt was accused of undermining capitalism. His response was that he was saving capitalism, not least from itself. Today, in the midst of another economic crisis, cries of "socialism" once again abound. These are old debates, writes Brookings expert William Galston, which many of us thought had been resolved during the New Deal. The fact that they are being revived today testifies both to the gravity of our economic ills and to the persistence of longstanding misconceptions about how modern market economies actually work.

The World Economic and Financial Crisis: Next Steps for G-20 Cooperation

Wed, 11 Mar 2009 00:00:00 GMT

Financial turmoil may well continue, which is why government cooperation at the April 2nd G-20 meeting in London is badly needed to mitigate the effects of the crisis and to avoid beggar-thy-neighbor policies. Ralph Bryant argues that a collective bargain among all nations is required to support near-term actions and to reform the institutions for the longer run, and identifies specific short-term commitments.

Democratization and the Transformation Process in East Asian Development States: Focus on Financial Reform in Korea and Taiwan

Wed, 11 Mar 2009 00:00:00 GMT

In this CNAPS Visiting Fellow working paper, Haeran Lim explores the effects of democratization on the transformation process of East Asian developmental states, focusing on financial reform in Korea and Taiwan after the Asian financial crisis of 1997-1998. Despite their similarities, Korea and Taiwan have taken different paths of reform, which resulted in different outcomes.

Barack's Too-Long Wish List: How the President Should Focus His Agenda

Tue, 10 Mar 2009 00:00:00 GMT

Like Presidents Reagan and Carter, Obama has an ambitious agenda for the nation. But will President Obama be as successful in pushing his agenda as Reagan, or as unsuccessful as Carter? Surprisingly, a key indicator of success is not early economic performance. As Brookings expert William Galston writes, the core issue is clarity and self-discipline, to deal with only a relatively small number of issues at a time. Thus, President Obama needs to focus his considerable leadership and communication skills on the financial crisis.

Regulating Insurance After the Crisis

Wed, 04 Mar 2009 00:00:00 GMT

With large and ongoing government bailouts of AIG, Robert Litan says that any reform of the nation’s financial system should include an update to the nation’s antiquated system of state insurance regulation. He believes that given the taxpayer exposure to the potential failure of large insurers—or those deemed to be “systemically important”—it is time that the federal government oversee all aspects of these operations to assure their continued solvency.

Bank Capital and the Stress Tests

Tue, 03 Mar 2009 00:00:00 GMT

The administration’s new “stress tests” for the 19 largest banks will likely result in substantial new infusions of government money to bolster their capital. Douglas Elliott explains what “capital” is; how to measure whether a bank has enough of it; and what the stress test and capital proposals are. He applauds these actions as “right on virtually all counts.”

Bank Nationalization: What Is It? Should We Do It?

Wed, 25 Feb 2009 00:00:00 GMT

Bank nationalization—the topic du jour in Washington and on Wall Street—means different things to different people. Although nationalization is a serious and extreme step with high social and financial costs, Douglas Elliott believes full nationalization may be needed only as a last resort for one or two of the nation’s larger banks, with more widespread nationalization unlikely. But, he says, it may make sense for the government to partially nationalize additional large banks now, in an effort to bring some certainty to the markets.

Fixing the Financial System

Fri, 20 Feb 2009 10:20:10 GMT

As policymakers and the public have been focused on the stimulus and the bank bailout, there remain tough policy questions about how to get at the root cause of the current economic problems – how to fix the financial system for the long-term. Director of the Initiative on Business and Public Policy Martin Baily discusses Fixing Finance: A Roadmap for Reform, laying out the long-term issues.

Bank Toxic Assets: What Role for the Taxpayer?

Fri, 20 Feb 2009 00:00:00 GMT

Critical decisions need to be made soon on the administration’s plan to create a public/private partnership to buy “toxic assets” from banks, including what the proper financial role of the taxpayer should be. Douglas Elliott argues that practical imperatives will push the government principally into the role of providing cheap financing and issuing guarantees of floor values for the securities, with little emphasis on buying assets directly as a co-investor. He believes the public should take the guarantor role, because it minimizes the potential downside for the taxpayer, although he acknowledges this is a subjective call based on tolerance for risk.

The Economic Crisis and the Fiscal Crisis: 2009 and Beyond

Thu, 19 Feb 2009 00:00:00 GMT

President Obama hosted a Fiscal Responsibility Summit on Monday and set a goal of cutting the federal budget deficit in half by the end of his term. William Gale and Alan Auerbach analyze the long-term fiscal outlook. Under what they view as optimistic assumptions, they project the deficit to average at least $1 trillion per year for the 10 years after 2009 – even if the economy returns to full employment and the stimulus package is allowed to expire in two years. They say the longer-run picture is even bleaker. Although fiscal policy problems are usually described as medium- and long-term issues, they find that the future may be upon us much sooner than expected.

Bailout Q&A: Fix Regulators, Liquidate Fannie and Freddie?

Tue, 17 Feb 2009 00:00:00 GMT

Given the jerky path of the bailout efforts by two administrations over the past 18 months, it isn’t surprising others would want a crack. Robert Litan and Martin Baily say the teetering U.S. regulatory system is the place to start fixing. The Wall Street Journal talked with Litan to find out why the stimulus should start with regulators.

Fixing Finance: A Roadmap for Reform

Mon, 16 Feb 2009 00:00:00 GMT

As policy-makers and the public have been focused on the stimulus and the bank bailout, tough policy questions about how to get at the root cause of the current economic problems remain—how to fix the financial system for the long-term. Martin Baily and Robert Litan lay out a roadmap for reform, one that harnesses the forces of market discipline that were ignored in the run-up to the current crisis, which they say can and must be retained after the need for massive short-run government intervention has passed.

Geithner’s Multitrillion Dollar Bailout

Wed, 11 Feb 2009 00:00:00 GMT

Treasury Secretary Timothy Geithner’s $2.5 trillion bailout plan would create a public-private fund to buy up hard-to-sell assets from banks, inject more capital into banks and use Treasury and Fed money to finance up to $1 trillion in assets backed by consumer, auto and small business loans. Is this plan sufficient? Will it stabilize the financial system? Doug Elliott and other experts discuss these questions in a op-ed piece in the New York Times.

Latin America, the Global Financial Crisis and the Velocity of Business

Wed, 11 Feb 2009 00:00:00 GMT

As the effects of the financial crisis continue to be felt across the globe, much of Latin America should be well prepared to weather the global financial storms with more opportunity for growth. In a speech at the Economist's 11th Annual Conference on Latin America Private Equity, held in Miami Florida, Mauricio Cárdenas discusses how the United States and Latin American countries can work together, not only on financing and aid, but also on issues like trade, migration, energy, and climate change.

The Administration’s New Financial Rescue Plan

Tue, 10 Feb 2009 00:00:00 GMT

Doug Elliott critiques the Obama administration’s new rescue plan for the banking sector announced on February 10, saying he agrees on the need for significant new capital injections, despite their political unpopularity, but argues that it is not at all clear that the proposed “bad bank” could be designed in a way that would make it better than simply guaranteeing toxic assets on the books of the banks. Elliott writes that the devil will indeed be in the details of the construction of the bad bank and the pricing mechanisms.

Foreclosures and Stimulus: What’s At Stake for America’s Neighborhoods

Mon, 09 Feb 2009 00:00:00 GMT

The final House-Senate compromise on the economic recovery package offers no boost for HUD’s Neighborhood Stabilization Program, established last year to help state and local governments mitigate the impact of foreclosures. Alan Berube and Alan Mallach argue that additional funds for the program (part of the House proposal omitted in the final bill) would provide much-needed assistance to local communities.

International Financial Governance: Toward the London G-20 Summit

Mon, 09 Feb 2009 09:00:00 GMT

Event Information:

February 09, 2009, 9:00 AM to 6:00 PM

In advance of the April G-20 leaders' summit in London, Brookings organized a high-level seminar with the British government and relevant experts to discuss and debate the most critical issues for the summit meeting. British Prime Minister Gordon Brown made introductory remarks at the session, calling for a "bold leap forward" to prevent future financial crises, and noted that the IMF and World Bank need to change their roles post-crisis.

TARP and the Financial Industry

Fri, 06 Feb 2009 13:20:50 GMT

As President Obama and Congress continue to consider how to jumpstart the economy, Fellow Douglas Elliott says that the plan must include dealing with the financial industry overall, its toxic assets as well as policies that work for consumers and businesses alike.

Stabilizing Communities: A Federal Response to the Secondary Impacts of the Foreclosure Crisis

Tue, 03 Feb 2009 00:00:00 GMT

The wave of home mortgage foreclosures that began in 2006 continues to surge, greatly destabilizing neighborhoods, towns, and cities across the United States. However, the federal government has played a limited role to date in blunting its effects. This Blueprint policy brief argues for carefully-targeted federal policies to assist states and localities in mitigating the community-level impacts of foreclosure, and creating the conditions for ultimate housing market recovery.

“Bad Bank”, “Nationalization”, “Guaranteeing Toxic Assets”: Choosing Among the Options

Thu, 29 Jan 2009 00:00:00 GMT

The new administration and Congress soon will be debating how to spend the TARP’s second $350 billion—and possibly even more—to stabilize the financial system. Douglas J. Elliott explains three approaches: establishing a “bad bank”; guaranteeing toxic assets; and nationalizing one or more banks, and recommends the “least bad option”—a combination of toxic asset guarantees and a mild form of nationalization.

The Global Financial Crisis: Getting Past the Blame Game

Wed, 28 Jan 2009 00:00:00 GMT

What is to blame for the global financial crisis? In new commentary, Eswar Prasad dissects the role global macroeconomic imbalances and other drivers might have played in precipitating the crisis and offers solutions for building future global economic stability.

Corruption and the Global Financial Crisis

Tue, 27 Jan 2009 00:00:00 GMT

As the Obama administration announces new rules for lobbyists, particularly focused on stimulus funds, Brookings expert Daniel Kaufmann examines the role that corruption and influence have played in the global financial crisis, and suggests ways policymakers should address these issues in future regulation.

Banking Sector, Bailout Reform May Top Obama Economic Agenda

Wed, 21 Jan 2009 00:00:00 GMT

Treasury nominee Timothy Geithner went before a Senate panel Wednesday, answering questions on the financial crisis as well as his tax payment controversy. Martin Baily and other analysts mull what's ahead for Obama's economic agenda on NewsHour.

Let the Bank Bailout Work

Thu, 15 Jan 2009 00:00:00 GMT

Martin Baily and Charles Schultze say the criticisms of Treasury’s handling of the first $350 billion of the Troubled Asset Relief Program (TARP) are misguided and that Congress should release the second $350 billion immediately with reasonable, enforceable rules. They say the program should be measured on the problems it has prevented from happening, and that the new funds should be used for their intended purpose: bank recapitalization to limit further contraction of lending.

The Man in the Middle of the TARP: A Discussion with Treasury’s Neel Kashkari

Thu, 08 Jan 2009 13:30:00 GMT

Event Information:

January 08, 2009, 1:30 PM to 3:00 PM

On January 8, the Brookings Institution hosted Assistant Secretary of the Treasury Neel Kashkari for an update on recent actions related to the Treasury Department’s $700 billion financial stability program. Full event audio is available for download.

The Poor Man's Burden

Wed, 07 Jan 2009 00:00:00 GMT

Eighty years ago, a depression changed the way we think about poverty. It took decades for the world to recover and to remember that if people are given freedom, they will prosper. In an article in Foreign Policy Magazine, William Easterly reflects on lasting consequences of the original approach of "development economics" and cautions against returning to misguided plans to fight poverty.

Currency Conversion during Korean Unification

Tue, 06 Jan 2009 00:00:00 GMT

As rumors about Kim Jong-il’s health focus attention on the future of the Korean peninsula, CNAPS Nonresident Fellow Yeongseop Rhee examines issues in South-North monetary integration, a vital aspect of unification. The success – or failure – of monetary integration will have major effects on the peninsular economy, the standard of living in the North, and the South’s appetite for unification.

The Economics of a Chinese Currency Attack

Wed, 31 Dec 2008 00:00:00 GMT

2007-2008 Federal Executive Fellow Jeffrey Haymond writes that the probability a currency attack on the dollar is low but plausible and potentially devastating. Haymond addresses how such an attack might be carried out and what can be done to prevent it.

The Not-So-Real-McCoy: Fake Alpha and the Need for Hedge Fund Transparency

Wed, 17 Dec 2008 00:00:00 GMT

Based on the 2008 working paper, "The Hedge Fund Game," Peyton Young and co-author Dean P. Foster show how surprisingly easy it is for unskilled managers to create “fake” alpha, mimicking the returns of their more skilled and scrupulous peers. The only way to protect the industry, the authors argue, is through greater transparency.

Sanctioning Iran: Current Impact, Future Prospects

Tue, 16 Dec 2008 12:30:00 GMT

Event Information:

December 16, 2008, 12:30 PM to 2:00 PM

The sixth session of the Iran Working Group was held on December 16, 2008, at Brookings. Several analysts shared their expertise on the current state of sanctions against Iran – in particular, on the current measures targeting certain Iranian banks – and on the prospects for the incoming U.S. administration to achieve multilateral consensus on a diplomatic strategy toward Tehran, particularly from key actors such as Russia and China.

Memo to the President: Rebuild Financial Institutions and Confidence

Thu, 11 Dec 2008 00:00:00 GMT

The economy is the number one concern in the minds of main street Americans. The $700 billion bailout package was aimed at rebuilding financial institutions, but it is now up to the new president to restore confidence in consumers and workers.

Rebuild Financial Institutions and Confidence

Thu, 11 Dec 2008 10:00:00 GMT

Event Information:

December 11, 2008, 10:00 AM to 11:30 AM

On December 11, Brookings hosted the sixth of 12 events to provide timely policy recommendations and political advice to the incoming president and his transition team. Brookings Senior Fellow Martin Baily offered policy solutions and priorities for the president-elect on the financial meltdown and the struggling housing market.

The Scouting Report: Rebuild Financial Institutions and Confidence

Wed, 10 Dec 2008 12:30:00 GMT

Event Information:

December 10, 2008, 12:30 PM to 1:30 PM

A new administration is an opportunity for restoring confidence in the U.S. economy through greater transparency in how the financial system works and through new regulations that assure that such a crisis will not happen again. On December 10, Martin Baily answered questions in a live web chat with Politico about fixing our troubled economy.