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All Fall Down

Debt, Deregulation and Financial Crises

Jane D’Arista

All Fall Down traces the ways in which changes in financial structure and regulation eroded monetary control and led to historically high levels of debt relative to GDP in both developed and emerging economies. Rising stocks of debt drove the global financial system into crisis in 2008 when households, businesses, financial institutions and the public sector in some countries strained to generate sufficient income for debt service. The stagnation and fall in asset prices that followed began the process of unwinding that led to a run on the financial sector by the financial sector.
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Chapter 10: Regulating the post-crisis system

Jane D’Arista

Extract

Reform proposals that addressed the problems of securitization, leverage, and “too big to fail” offered at the time of the crisis were among the many issues not fully addressed in the Dodd-Frank Act. That Act, however, contained highly effective provisions to reduce interconnectedness that have not yet been fully implemented while the effectiveness of its restrictions on banks’ trading for their own accounts (the Volcker rule) has been eroded. Critical action on levels of concentration is needed to limit the size of individual institutions and the financial sector as a whole in relation to the size of the national economy and to limit asset concentrations by extending the use of margin requirements to all financial assets.

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