G-SiFi: Old Wine in New Bottle!

The famous tagline of Too Big To Fail of US financial crisis in 2007-2008, which eventually affected the whole world, has a new name. The new name is reflective of its defensive or preventive nature; and the measures enforced through it are supposed to prevent the kind of gridlock, which dried up credit completely at the apex of crisis. The new name has a rather ungainly appearance:  Global systemically important financial institutions. The acronym is G-SiFi. To an Indian ear it would have a familiar and uncomfortable ring. SiFy was a subsidiary of B Ramlinga Raju’s Satyam Computer. Raju became infamous over his cooking of accounts and financial frauds at Satyam and has spent long time in jail.
Financial Times reported, ^^The Financial Stability Board [FSB], made up of regulators, central bankers and representatives of international bodies, plans to update its list of GSifis every November, and the methodology for determining which banks are systemic will also be reviewed every three years. Currently, banks make the list based on their size, riskiness and importance to the broader financial system.
That all the three factors considered above make good sense is beside the point. What it hides is that the bigger one gets more is one’s risk appetite. The composition of the FSB is an acid test for from where the biggest threats to *stability* are likely to emerge. Institutions from only 24 countries, international organizations [like BIS, EC, ECB, IMF, WB, OECD], and international standard setting bodies find representation. Martin Gruenberg, chairman of US Federal Deposit Insurance Corporation, and Paul Tucker, Deputy Governor of Bank of England, led an international effort to put to together a Emergency Response Plan [ERP] to address banking and financial institutions’ failures. Presently they have created a US-UK template for the 12 large banks or financial institutions -G-Sifi- from these countries that aims to force the shareholders and creditors of these entities to take the hit and save the taxpayers burden of rescue. Eventually, same template is expected to cover 16 G-Sifi from other countries. The idea behind the measure is to avoid case by case reactive policy as happened in Lehman Brothers case, and instead have a policy framework to cover such bankruptcies. Addressing the symptoms seems to be the way FSB going without addressing the causes that led to the crisis in the first place. But wouldn’t that be too much to ask of a body that represents a system -Capitalism in present case-, which is faltering from one crisis to another.
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