What Can Be Done?

An ounce of prevention is worth a pound of cure.

Benjamin Franklin

DO WE HAVE TO RESIGN OURSELVES to having a fragile and dangerous banking system, one that harms the economy and requires government support when the risks turn out badly? As we have seen, there is not much prospect of dealing with failures of large and interconnected banks, particularly those that are active internationally, without imposing large costs on the economy. The economy is also harmed when many banks are distressed at the same time and do not make sufficient loans because of their overhanging debts. It is therefore important to focus on preventing banks and other financial institutions from running into distress or insolvency. For this purpose, ...

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