Contagion Thesis Once Derided Proven by Kristin Forbes – Bloomberg 01-24-13

Salient to Investors:

Kristin Forbes at MIT says:

  • There is complacency over the risk that financial turmoil will spread beyond a single country, despite Europe’s struggles. Regulators are not doing enough to bolster preventative oversight, and we’ve seen softening of regulatory requirements.
  • Requiring more capital may reduce the availability of credit but offers substantial benefits by buffering against international panics.
  • Europe’s focus on sharing liabilities may increase contagion risks as investors begin to question the solvency of countries providing bailout funds, while Europe needs to create a deposit-insurance system.
  • The risk of bank runs in Europe persists and the storm is not over – there’s tremendous risks in many countries.
  • Even the best policies won’t avert every banking calamity, but we do is a better job preventing them from spiraling out of control.
  • MIT tenure advisors told her over a decade ago not to work on financial crises or contagion because there won’t be any more crises.

Read the full article at http://www.bloomberg.com/news/2013-01-25/contagion-thesis-once-derided-proven-by-kristin-forbes.html

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