Mohamed A. El-Erian , Columnist

There's Still Too Much Risk in the Financial System

For 10 years, central banks have done what they could to keep markets stable. Governments can't say the same.

August 10, 2017 at 5:00 AM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

It's government's turn.
Photographer: Dominique Faget/AFP/Getty Images

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Intervening 10 years ago to contain the damage from the banking system's excessive risk-taking in mortgage-backed securities, the European Central Bank initiated what has proven to be an exceptional and prolonged involvement in markets by central banks. Much has changed since then, yet too much remains the same. The risk of unsettling financial instability, while lower, has morphed and migrated but has not disappeared.

On Aug. 9, 2007, an announcement by BNP Paribas brought to life investors’ worst fear: that, regardless of price, they would not be able to redeem any of their holdings in three investment funds. Underlying this dramatic announcement was excessive exposure to inherently illiquid securities by investment funds that overpromised investors access to their funds.