Make Banks Safer: Tax Them
Banks might be safer, but the financial system is not. A tax might be part of the solution.
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Nearly six years after the financial crisis, regulators have adopted a slew of new rules that might make individual banks a little safer. None of the measures, though, adequately addresses a more troubling and hard-to-recognize problem: the risk lurking in the linkages between financial institutions.
New capital and liquidity rules will make banks marginally more resilient to losses and somewhat less susceptible to runs. Measures such as the Volcker Rule in the U.S. and ring fencing in the U.K. will limit big banks' ability to make speculative bets with taxpayer-insured funds. Taken together, the new rules might also encourage the largest banks to become a bit smaller.