Economics rightly comes in for a lot of stick for failing to appreciate the possibility of a financial crash before 2007\/8. However it is important to ask whether things would have been very different if it had. What has happened to financial regulation after the crash is a clear indication that it would have made very little difference.<\/p>\n
There is one simple and straightforward measure that would go a long way to avoiding another global financial crisis, and that is to\u00a0substantially<\/em>\u00a0increase the proportion of bank equity that banks are obliged to hold. This point is put forcibly, and in plain language, in a recent\u00a0book\u00a0by Admati and Hellwig: The Bankers New Clothes.\u00a0 Admati and Hellwig suggest the proportion of the balance sheet that is backed by equity should be something like 25%, and\u00a0other\u00a0estimates for the optimal amount of bank equity come up with similar numbers. The numbers that regulators are intending to impose post-crisis are tiny in comparison.<\/p>\n \u03a0\u03b7\u03b3\u03ae:<\/strong> mainlymacro.blogspot.gr<\/a><\/p>\n