CCMR Releases Paper Urging Discussion Of Contagion In Financial Markets

CAMBRIDGE, Mass., Sept. 3, 2014 /PRNewswire-USNewswire/ -- The Committee on Capital Markets Regulation (CCMR) today released the discussion paper: "What To Do About Contagion," which analyzes the contagious panic at the core of the financial crisis in 2008 and calls for public discussion of how to contain contagion in the future.

The paper outlines the array of government weapons that were deployed during the 2008 crisis to deal with contagion, including an expansion of the Federal Reserve's role as lender of last resort, and the adoption of expanded guarantees of short-term creditors by the Treasury and the Federal Deposit Insurance Corporation (FDIC).

Professor Hal S. Scott, Director of the Committee on Capital Markets Regulation and a professor of law at Harvard, noted that the Federal Reserve was created in 1913 to deal with financial panics and that guarantees to protect creditors have been considered necessary since the creation of the FDIC during the Great Depression.

These weapons were successfully deployed during the crisis but they have been significantly curtailed since then by Congress to limit so-called "moral hazard"—encouraging companies to take risk because they will be protected by the government—as well as the cost to the taxpayer of public support of the financial system.

The Committee's paper examines whether such post-crisis reforms as capital requirements, liquidity requirements, and the creation of better bankruptcy procedures, obviate the need for strong contagion weapons, and it also raises the question of whether it is in the public interest to restore and perhaps even strengthen these weapons.

The Committee on Capital Markets Regulation takes no position on the resolution of these issues, but believes that it is urgently important to spark public debate on how best to confront and defeat contagion in the future.

"What To Do About Contagion" can be downloaded from the CCMR website at http://capmktsreg.org/reports/what-to-do-about-contagion/.

The Committee on Capital Markets Regulation is an independent and nonpartisan 501(c)(3) research organization dedicated to improving the regulation of U.S. capital markets.

For further information:
Tim Metz
Metz Group, LLC
[email protected]
Ph: (646)495-5140

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SOURCE Committee on Capital Markets Regulation