IT IS like storm-proofing a building with a paper towel. From 2015, the world's banks will be forced to keep a proportion of their assets in reserve, to prevent a repeat of the 2008 banking crisis. But economists say the rules will make little difference.
Seraf?n Mart?nez Jaramillo of the Mexican Central Bank endorses the move but says it doesn't allow for the fact that bad debts can spread through the economy and take down many banks at once. This was at the heart of the 2008 crisis. "You have to incorporate contagion."
Simone Giansante of the University of Bath, UK, has modelled the effects of such rules and found they barely reduce this risk (Social Science Research Network, doi.org/j59).
Many economists say what's needed is a system that can also identify threats ahead of time.
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