Returning stability to the banks and the banking system
Before the crisis, systemic risk was a subject for abstract theoretical discussions and seen as something for others to worry about. Derivatives, securitisation, risk management and the Basel banking regulations were thought to have made the world a safer place, not a more dangerous one.
Typical reactions to the crisis have been short-term in nature, in many cases driven by the need for survival. Short-term actions alone will not suffice and fundamental questions need to be asked and issues tackled. A few leading institutions are beginning to address those fundamental issues and prepare themselves to prosper in the new world while most have not begun the process. This paper explores a number of these questions, and subsequent papers will examine specific topics in more detail.