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The Transatlantic Banking Crisis: Lessons and EU Reforms

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  • Welfens, Paul J. J.

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    (University of Wuppertal)

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    Abstract

    The key dynamics of the transatlantic banking crisis are analyzed – with emphasis on the fact that the banking disaster of 2007/08 was not really a surprise –, and the five key requirements for restoring stability and efficiency in the EU/OECD banking sector are highlighted. Most important, however, is the introduction of a new tax regime designed to encourage bankers to take a more long term time horizon in decision-making and to reduce excessive risk-taking. Banks and funds should be taxed not only on the basis of profits but also on the basis of the variability – read variance – of the rate of return on equity: the higher the variability over time the higher the tax to be paid. The quality and comprehensiveness of banks’ balance sheets must be radically improved and all off-balance sheet activities must be included in future total balance sheets. The medium term structure of employment in terms of the breakdown nontradables/tradables will have to adjust.

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    Bibliographic Info

    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Policy Papers with number 2.

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    Length: 59 pages
    Date of creation: Apr 2009
    Date of revision:
    Handle: RePEc:iza:izapps:pp2

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    Related research

    Keywords: banking; financial market reforms; EU; globalization; USA;

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    1. Andre Jungmittag & Gerhard Untiedt, 2002. "Kapitalmobilität in Europa aus empirischer Sicht - Befunde und wirtschaftspolitische Implikationen," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 222(1), pages 42-63.
    2. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
    3. Kenneth A. Froot & Jeremy C. Stein, 1992. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
    4. Paul Welfens, 2008. "Banking crisis and prudential supervision: a European perspective," International Economics and Economic Policy, Springer, vol. 4(4), pages 347-356, February.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Joe Peek & James A. Wilcox, 2006. "Housing, Credit Constraints, and Macro Stability: The Secondary Mortgage Market and Reduced Cyclicality of Residential Investment," American Economic Review, American Economic Association, vol. 96(2), pages 135-140, May.
    7. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
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