Fixing Finance

On October 13, 2009, Adrian
Blundell-Wignall discussed the origins of the financial crisis and requirements
for reform at the New America Foundation, as part of the OECD Breakfast Series.
Blundell-Wignall, Deputy
Director for Financial and Enterprise Affairs at the OECD and author of a recent
paper in the Journal of Asian
Economics, delivered technical yet impassioned remarks from an
international perspective, linking the explosion of complex derivatives to lax
regulation, international tax arbitrage, and the persistent "equity culture" on
Wall Street. The Basel II capital requirement regime was an unmitigated
failure, Blundell-Wignall argued, which failed to tame excessive leverage and
risk-taking. By contrast, Australia’s financial sector, a
highly-regulated oligopoly which eschewed complex securitization and the
"contagion risk," has weathered the storm without a single dollar of taxpayer
support.

Some of the emergency
measures undertaken last fall, including bank bailouts and unconventional
monetary policy, were painful yet necessary responses to an unprecedented
crisis. Yet policymakers have failed to address the fundamental problems of
industry competition and corporate governance that enabled the financial
calamity, most notably the "equity culture" and the "too big to fail" problem:
"We’ve allowed some monsters to emerge
in the world of banking," Blundell-Wignall concluded, "and I just don’t know
what to do about it."

Participants
featured speaker
Adrian Blundell-Wignall
Deputy Director, Financial and Enterprise Affairs, OECD
Author, "Origins of the Financial Crisis and Requirements for Reform"

moderator
Michael Lind
Policy Director, Economic Growth Program
New America Foundation