Risk Japan 2011: Too-big-to-fail rules should be scrapped in favour of ‘bridge banks’
Japan looked at the need to impose excess capital for systemically important financial institutions in the 1990s and rejected it in favour of ‘bridge banks’ which could inherit losses in the event of a major bank getting into trouble. One university professor associated with the Japan FSA believes such an approach would also work in a global context
Global financial regulators are close to determining a final list of systemically important financial institutions (Sifis) which will be required to hold higher levels of capital than their peers. The aim is to ensure financial institutions that are deeply interconnected within the financial system are less likely to fail, so reducing the possibility of systemic collapse.
But Naoyuki Yoshino, a professor of economics at Keio University in Tokyo, believes regulators have got it wrong. He says
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