INET Research on Financial Sector Weakness and Too Big to Fail
After 2008 the financial system was supposed to be fixed thanks to Dodd-Frank, stress tests, higher capital requirements, and all that. Suddenly we now wake up to discover that the collapse of a single bank may mortally threaten large segments of the banking system and that authorities are reinstating the financial equivalent of Medicare for All (for financiers only). And this amid news reports that SVB leaders lobbied against regulatory restraints and higher FDIC fees and even paid out bonuses just before the takeover.
INET was founded in the wake of the 2008 financial crisis to help rethink the role finance plays in economic theory. Since then, it has broadened its mission, but this concern remains central to our purpose. INET has supported many of the best critical discussions of financial reform — too many to list easily here. Naturally, we continue to commission and publish work in this area.
Sometimes, though, it makes sense to remind readers, scholars, and the press of some of our past research and analysis. Only a few days ago we did that, with a heavy heart, in our memorial to Edward J. Kane and his stellar contributions in this area.
The newest turmoil in financial markets, though, underscores the relevance of a short INET review article written as a retrospective on 2008 and the Dodd-Frank bill as that law was being significantly weakened.
As more news comes out about how SVB and other banks lobbied against regulatory constraints on their behavior, the continuing relevance of another INET research paper comes to mind. It was written precisely to stop the endless yammering about how it is impossible to show that Congressmen and women ever vote in favor of legislation because they receive vast streams of campaign contributions. Full Stop.
With inflation as yet untamed, this crisis is not going away any time soon. INET will now deepen our work in this world of corruption of governance and radical uncertainty to make further advances and shed light on the challenges we face in order to create a healthy economy and society.
Robert Johnson is President of INET. Thomas Ferguson is INET Director of Research