Table of Contents

Financial Crisis Containment and Government Guarantees

Financial Crisis Containment and Government Guarantees

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Financial Crisis Containment and Government Guarantees analyses the international community’s commitment to forging enhanced, well thought-out, mechanisms for containing systemic risks in the context of a highly interconnected global financial framework which incorporates ongoing financial innovation.

Chapter 1: Managing crises without government guarantees: How do we get there?

Christine M. Cumming

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

The times are extraordinary. The years of financial turbulence that we have experienced and continue to experience have illuminated both the power and the limitations of government intervention in managing financial crises. These years have illustrated how much more we need to understand about good design principles for intervention and sound strategies for the restoration of financial and banking market functions following a crisis. And these years have highlighted the interaction between the fiscal condition and capacity of countries and the size and health of the domestic financial system. I speak of government intervention broadly, because the answer to the provocative question I am to discuss – how can we conduct crisis management without financial guarantees – depends a great deal on which types of government intervention we hope to avert. Certain guarantee or contingent arrangements can short-circuit incipient instability or stabilize already roiled financial institutions and markets; we do not want to end them. Other interventions are more intrusive and involve more socialization of loss; we want to reduce their necessity.

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